Purchasing Power Parity Forecasts. Assuming purchasing power parity, and assuming that the forecasted change in consumer prices is a good proxy of predicted inflation, forecast the following cross rates:

a. Japanese yen/U.S. dollar in one year

b. Japanese yen/Australian dollar in one year

c. Australian dollar/U.S. dollar in one year Use the table below containing economic, financial, and business indicators from October 20, 2007, issue of The Economist (print edition) to answer this problem.

Transcribed Image Text:

Forecasting the Pan-Pacific Pyramid: Australia, Japan and the United States Gross Domestic Product Industrial Production Unemployment Rate Forecast Forecast Country Australia Latest Qtr Qtra 2007e 2008e Recent Qtr Latest 4.3% 3.8% 4.1% 3.5% 4.6% 4.2% Japan 1.6% -1.2% 2.0% 1.9% 4.3% 3.8% United States 1.9% 3.8% 2.0% 2.2% 1.9% 4.7% Consumer Prices Interest Rates Forecast 3-month 1-yr Govt Country Year Ago Latest 2007e Latest Latest Australia 4.0% 2.1% 2.4% 6.90% 6.23% Japan 0.9% -0.2% 0.0% 0.73% 1.65% United States 2.1% 2.8% 2.8% 4.72% 4.54% Trade Balance Current Account Current Units (per US$) Country Last 12 mos (billion $) Last 12 mos Forecast 07 (billion $) (% of GDP) Oct 17th Year Ago Australia -13.0 -$47.0 -5.7% 1.12 1.33 Japan United States 98.1 -810.7 $197.5 4.6% 117 119 -$793.2 -5.6% 1.00 1.00 Source: Data abstracted from The Economist, October 20, 2007, print edition. Unless otherwise noted, percentages are per- centage changes over one year. Rec Qtr = recent quarter. Values for 2007e are estimates or forecasts.