Absolute PPP works. In Denmark, Pizza Hut sells a super large ultra supreme pizza for DKr 60 today. The same pizza costs $ 5 in the US today. Expected Danish inflation is 8% per year for pizza. The expected US inflation is 6% per year for pizza.

1) Todays expectation of the cost American pizza next year:

A) $ 5.30

B) $ 5.40

C) $ 10.80

D) $ 5

E) none of the above, it depends on exchange rates.

2) Todays expectation of the cost of Danish pizza next year:

A) DKr 53

B) DKr 66

C) DKr 63.60

D) DKr 64.80

E) none of the above, it depends on exchange rates.

3) Exchange rate today in DKr per $ is

A) same as next year rate forecast

B) more (bigger number in DKr per $) than next year rate forecast

C) less (smaller number in DKr per $) than next year rate forecast

D) need more data

4) What to expect?