Suppose the US and Japan only consume two types of goods: hamburgers and sushi. In the US,hamburgers account for 60% of the consumption bundle and sushi accounts for 40%. In Japan,hamburgers account for 40% of the consumption bundle and sushi accounts for 60%. Both ham-burgers and sushi satisfy the law of one price. In 2020, a hamburger is as expensive as a box ofsushi. In 2021, the price of hamburgers increases by 10%, and the price of sushi falls by 20%.

1). Assume the price of a hamburger and the price of a box of sushi are both 100 in 2020. What isthe rate of inflation in each country in 2021?

2). Suppose that in 2021, the dollar weakens relative to the yen by 10%. What would be themagnitude of the real depreciation of the dollar relative to the yen?