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Suppose a basket of goods costs $100 in the U.S. and €50 in France. What exchange rate, in dollars per euro, would be consistand Suppose a countrys central bank announces that it is increasing the money growth rate. The countrys currency will suddeIn the long run, with variable real exchange rates, if American goods become more attractive relative to European goods, thethe first one

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As per the purchasing power parity the exchange rate shall be = 100 /50 =0.5 $ / Euro

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