3. Overvalued or undervalued? a) b) Instead of big mac, let' 5 use our class example of textbooks to evaluate the value of the Japanese yen against US. dollars. We learned that the price of a textbook in Japan is 31,800 yen, the price of the same textbook in the U.S. is $160, and the spot exchange rate is $0.0095/ yen. According to the theory of purchasing power parity, does the yen appear to be overvalued, undervalued, or at the PPP level? By how much? Calculate the percentage deviation of the yen from its PPP value. Suppose that on January 1, the price of 100 yen was $1.05, and PPP held. Over the year, the Ja anese ination rate was 0.5 percent, and the U.S. ination rate was 3.0 percent. If e exchange rate at the end of the year was $1.07 per 100 yen, did the yen appear to be overvalued, undervalued, or at the PPP level? Explain your