Suppose the date is January 1, 2017. The price level in U.S. is USD15,000, the price level in the U.K. is GBP10,000, and the spot exchange rate is USD1.4/GBP. a) Is the U.S. dollar overvalued or undervalued relative to the U.K. pound in terms of absolute purchasing power parity (APPP)? Can you devise a goods market arbitrage starting with GBP1,000,000? (15marks) b) Suppose that the rate of U.S. inflation during 2017 is 2%, the rate of U.K. Inflation during 2017 is 5%, and the spot exchange rate on December 31, 2017 is USD1.3/GBP. What is the magnitude of the real depreciation of the U.K. pound relative to the U.S. dollar? (15 marks) PTO