Reference no: EM13208886
Suppose that last year, the nominal exchange rate between the Japanese yen and the British pound was ¥225.0 per £1.0, one unit of Japanese output cost ¥2000, and one unit of British output cost £8.0.
a. What was the real exchange rate between the U.K. and Japan last year, expressed as the cost of British output (in units of Japanese output)?
b. Suppose that, between last year and this year, the pound appreciated by 12% against the yen (a 12% increase in the number of yen required to buy 1 pound).
What is the nominal yen-pound exchange rate this year?
c. If the British price level and the Japanese price level are the same this year as last
year, what is the new real exchange rate between the U.K and Japan this year,
expressed as the cost of British output (in units of Japanese output)?
d. Suppose, instead, that between last year and this year, the pound appreciated by 12% against the yen and Japan experienced a 20% increase in its price level (a 20% increase in the number of yen required to purchase one unit of Japanese output). All else equal, what is the new real exchange rate between the U.K. and Japan this year?
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