11. Purchasing Power Parity Forecasts. Using the the- ory of purchasing power parity, and that forecasted changes in consumer prices are the best measures of expected inflation, forecast the following spot

exchanges for one year into the future:

a. Japanese yen/U.S. dollar

b. Japanese yen/Australian dollar

c. Australian dollar/U.S. dollar

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Forecasting the Pan-Pacific Pyramid: Australia, Japan, and the United States Industrial Unemployment Gross Domestic Product Production Rate Country Australia Japan Latest Qtr Qtr* Forecast 2007e Forecast 2008e Recent Qtr Latest 43% 4.1% 1.6% -1.2% 2.0% 1.9% 4.3% 3.8% United States 1.9% 2.0% 2.2% 1.9% 4.7% Consumer Prices Interest Rates 1-yr Govt Bond Country Year Ago Latest Forecast 2007e 3-month Latest Latest Australia 4.0% 6.90% Japan 0.9% -0.2% 0.0% 0.73% 1.65% United States 2.1% 2.8% 4-72% 4:54% Trade Balance Current Account Current Units (per US$) Last 12 months Last 12 months Forecast 07 Country (billion $) (billion $) (% of GDP) Oct 17th Year Ago Australia $470 12 Japan 98.1 $1975 4.6% 117 119 United States 8107 $79312 6% 1.00 1:00 Source: Data abstracted from The Economist, October 20, 2007, print edition. = Unless otherwise noted, percentages are percentage changes over one-year. Rec Qtr recent quarter. Values for 2007e are estimates or forecasts.