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Question 4 Suppose that the US. and Japan both produce baseballs. A baseball costs $5 in the US and 400 in Japan. The exchange rate

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Question 4 Suppose that the US. and Japan both produce baseballs. A baseball costs $5 in the US and 400 in Japan. The exchange rate E$/ = 0.01. 1. Does the Law of One Price hold? Which currency is undervalued and which is overvalued? 2. Imagine that the exchange rate situation persists over time. What do you expect to happen to the production of baseballs in each country? 1

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