Question: PPP : The inflation rate in the U.S. is 2%, while the inflation rate in Japan is 1.4%. The current exchange rate for the Japanese

PPP: The inflation rate in the U.S. is 2%, while the inflation rate in Japan is 1.4%.

The current exchange rate for the Japanese yen () is $0.012. After supply and demand for the Japanese yen has adjusted in the manner suggested by purchasing power parity theory,

what will bethe new exchange rate for the yen? (Assume US is home). Use the formal

PPP formula (4 marks)

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