Theory of purchasing power parity

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Reference no: EM1367551

Assume the dollar-pound rate equals $.5 per pound. According to purchasing power parity theory, determine the dollar's exchange rate under each of the following scenarios ?
a) The U.S. price level increases by 10% and price level in Britain stays constant
b) The U.S. price level increases by 10%, while price level in Britain increases 20%
c) The U.S. price level increases by 10%, while price level in Britain increases by 5%

Reference no: EM1367551

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