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The spot exchange rate is yen107/$. US inflation is 4% per year for the next two years and Japan has inflation of 6% per year

The spot exchange rate is yen107/$. US inflation is 4% per year for the next two years and Japan has inflation of 6% per year for the next two years. Two years from today the spot exchange rate is yen105/$.

a. Which country gained competitiveness?

b. Compare the % change in the spot rate to what is required to maintain PPP.

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