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Suppose that last years value of the yen was $0.0087. Today, the one-year inflation rate in the United States is 4 percent, and the one-year
- Suppose that last years value of the yen was $0.0087. Today, the one-year inflation rate in the United States is 4 percent, and the one-year inflation rate in the Japan is 5 percent.
- What should the currency movement on the yen over the last year be? Show your work.
- If todays actual spot rate on the yen is $.0085, is the yen overvalued or undervalued? Are we below or above the PPP line?
- Explain how PPP will be restored.
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