The annual inflation rates of Australia and New Zealand realized in five consecutive years are tabulated below. The nominal exchange rate at the end of each of these five years are also recorded and presented below. The nominal exchange rate at the beginning of Year 1 was A$0.9500/NZ$. Hint: To answer this question, it is easier to define A$ as the home currency and NZ$ as the foreign currency. Year Year 1 Inflation rate in Australia 1.50% Inflation rate in New Zealand 3.50% Year-end exchange rate a Year 2 b 3.90% A$0.9155/NZ$ Year 3 2.00% A$0.8988/NZ$ e Year 4 Year 5 1.90% 4.20% d 4.40% A$0.8612/NZ$ (a) What are the values of a, b, c, d, and e respectively that will result in purchasing power parity being satisfied throughout these five years? You need to show your calculations in arriving at the final answers. = (b) Now suppose a = A$0.9280/NZ$, b = 3.00%, c = = 2.00%, d = A$0.8600/NZ$, and e 5.20%. By indexing the price levels of the two countries to 100 at the beginning of Year 1, compute the price levels of the two countries at the end of each of these five years. Compute the real value of NZ$1 in Australia (i.e., real exchange rate) at the end of each of these five years. 1 (c) Again, suppose a = A$0.9280/NZ$, b = 3.00%, c = 2.00%, d= A$0.8600/NZ$, and e=5.20%. Based on your answers in (b), describe any changes in the relative competitiveness of the goods and services produced by Australia vs. New Zealand during these five-year period.