Short essay question. Write your answer in the space provided.

8) The beginning-of-the-year prices for a pair of boots are $50 in the United States and 8,000 in Japan. We know that prices in the United States and Japan will change over the coming year due to inflation. If we assume that inflation in the United States (our home country, infh) will be 3% and inflation in Japan will be 2% (our foreign country, inff), what will the price of the boots be at the end of the year? If one U. S. dollar can be exchanged for 160 Japanese yen today and purchasing power parity holds, what can we say about the future exchange rate one year from now?