This is my first time using course hero so I do not know if you can see the document I am on but I need help with problem set 1 A-C and also problem set 2 A-D.

(10 points) Purchasing-Power Parity

The following table gives the prices indices in US and EMU in 2010 and 2020. Answer the following questions.

Price index in US 2010: 125 2020:180

Price index in EMU 2010: 120 2020:144

A.(2 points) Calculate the PPP exchange rate between dollar and euro in 2020? Express the exchange rate as the dollar price per euro.

B.(4 points) Is euro expected to appreciate or depreciate against dollar over the period 2010-2020 according to the relative purchasing-power parity? What is the expected rate of appreciation or depreciation?

C.(4 points) Suppose the nominal exchange rate NR($/) is 1 in 2010 and 1.4 in 2020. Did euro appreciate or depreciate against dollar in nominal terms? What is the rate of appreciation or depreciation in nominal terms? Calculate the real exchange rate RR($/) in 2010 and 2020. Did euro appreciate or depreciate against dollar in real terms? What is the rate of appreciation or depreciation in real terms?

(6 points) Monetary Approach to Exchange Rate Determination

The follow table provides the money supply and real output in US and UK in 2010 and 2020. Assume thatV, the velocity of circulation of money is 5 in the US and 4 in UK. Assuming a flexible exchange rate system, answer the following questions according to the monetary approach.

2010 Ms in US: 6000 Ms* in UK: 1200 Y in US: 15 Y* in UK: 3

2020 Ms in US: 9000 Ms* in UK: 1800 Y in US: 18 Y* in UK: 4

A.(2 points) Calculate the price levels in US and UK in 2010 and 2020.

B.(2 points) Calculate the exchange rate between dollar and pound in 2010 and 2020.

C.(1 point) Did dollar appreciate or depreciate against pound over the period 2010-2020? Calculate the rate of appreciation or depreciation.

D.(1 point) Is your result in part C consistent with the statement that the currency of a high-inflation nation should experience depreciation against that of a low-inflation nation? Explain briefly.