Suppose average period of employment in the economy is 76 months, each month 1.5 million of unemployed find jobs, and the labour force is 120 million. The actual rate of unemployment is 7%, expected inflation is 8%, and the sensitivity of inflation to cyclical unemployment is 0.5. Foreign inflation is 5%, and the nominal exchange rate in this economy falls by 3%.

(a) Calculate the percentage change of the real exchange rate.

(b) What will happen to the competitiveness of this economy's goods in the world goods markets? Briefly explain your answer.