Draw the exchange rate market for yen denominated assets. Explain the effect of declining aggregate price level accompanied by lower trade barriers in Japan on the value of the Japanese yen. Explain which curves moves in which direction and why to get full credit.

Assume the price of a Big Mac is $5 in USA and 280 Yen in Japan. Calculate the implied exchange rate between Yen and USD (as Yen/USD). If the actual exchange rate is 124 Yen/USD is the Yen undervalued or overvalued? By how much? Explain.