Suppose that the AUD actually appreciates in nominal terms by 2% relative to the NZD...
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Suppose that the AUD actually appreciates in nominal terms by 2% relative to the NZD 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 AUD 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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