you are given the following information. the current US dollar- pound exchange rate is $2 per British pound . A US basket that costs $ 120 would cost 100 pounds in the United Kingdom. For the next year the Federal Reserve Bank predicted to keep US inflation at 3 percent and the Bank of England is predicted to keep UK inflation at 4 percent.

a) what is the expected US minus UK inflation in the coming year ?

b) what is the ppp spot exchange rate ?

c) what is the expected change in the value of British pound over the next one year according to the ppp? interpret your answer.

d) what is the current US real exchange rate with the United Kingdom?

e) what is the value of the real exchange rate when the ppp holds?

f) how much is the US dollar overvalued or undervalued in real terms as a percentage?