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c. Suppose that over the next year, there is 3% inflation in Australia, there is 1% inflation in Britain, and the nominal exchange rate changes so that relative purchasing power parity is satisfied. What is the expected nominal exchange rate after 1 year? (1 mark) d. Suppose that the pound actually depreciates in nominal terms by 1% relative to the AUD during the year (ex post). i) What turns out to be the actual nominal exchange rate after 1 year? (1 mark) ii) What is the ex post rate of change in real exchange rate? (2 marks) iii) Has the pound appreciated or depreciated in real terms? (1 mark) iv) What is the new real exchange rate after 1 year? (2 marks) v) Based on the real exchange rate observed over the year, is the relative purchasing power parity found to be satisfied or not and what is the reason for your answer? (2 marks) c. Suppose that over the next year, there is 3% inflation in Australia, there is 1% inflation in Britain, and the nominal exchange rate changes so that relative purchasing power parity is satisfied. What is the expected nominal exchange rate after 1 year? (1 mark) d. Suppose that the pound actually depreciates in nominal terms by 1% relative to the AUD during the year (ex post). i) What turns out to be the actual nominal exchange rate after 1 year? (1 mark) ii) What is the ex post rate of change in real exchange rate? (2 marks) iii) Has the pound appreciated or depreciated in real terms? (1 mark) iv) What is the new real exchange rate after 1 year? (2 marks) v) Based on the real exchange rate observed over the year, is the relative purchasing power parity found to be satisfied or not and what is the reason for your answer? (2 marks)

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