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Suppose that the annual inflation rates are 7% per annum and 5% per annum in...

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Finance

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Suppose that the annual inflation rates are 7% per annum and 5% per annum in Australia and Germany respectively in year t, and the Euro appreciates against the Australian dollar by approximately 4% from yeart to year t+1. If absolute PPP initially holds in year t, then the real exchange rate (A$/) in yeart+1 should be O 0.0192 O 1.0206 O 0.1952 O 0.9895 o 1.0698

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