(b) Consider a world that only comprises 2 goods (Good 1, Good 2) and 2 countries (UK and Japan). Assume that the population of all countries split their consumption equally between the two goods.

The prices of goods at time t are listed below:

	UK (GBP)	Japan (Yen)
Good 1	160	208
Good 2	224	304

Let the spot exchange rate at time t be equal to 0.75 GBP per Yen. Does absolute purchasing power parity (APPP) hold between the UK and Japan?

(c) You are now given the following time t+1 information:

UK national price: 240

Japan national price: 250

Using the information in (b), calculate the time t+1 UK-Japan exchange rate implied by relative PPP?

(5 Marks)