1. Japanese bushels per US bushel Convert P* to P = P*/e
1a. What is the real exchange rate between Japan and US in terms of corn?
e x P / P*
100 (yen per $) x $5 US bushel / 750 yen Japanese bushel
= …… what?
Japanese bushels per US bushel
1b How much does 1 Japanese bushel cost in US $?
Convert P* to P = P*/e
750 yen / 100 yen per $
$7.50

2. Japanese bushels per US bushel 1b 1 Japanese bushel costs $7.50 US
100 (yen per $) x $5 US bushel / 750 yen Japanese bushel
= …… what?
Japanese bushels per US bushel 1b
1 Japanese bushel costs $7.50 US
1c – where is corn more expensive
Japan ……. Why?
It takes $5 to buy a US bushel
It takes $7.50 to buy a Japanese bushel

3. #2
P*/P = 1200/30 = 40 Won per Dollar

4. P. /P but now pair of jeans = 2400 won …
P*/P but now pair of jeans = 2400 won …..so /30 = 80 won per dollar
The Won depreciated because it now takes more Won to buy 1 US $

5. So jeans in Korea cost 2400 won and in the US cost $60
Continue from part B and compare to part B
So jeans in Korea cost 2400 won and in the US cost $60
P*/P / 60 = 40 won per dollar
The US dollar depreciated from part B ..
--$1 did purchase 80 won, now it will only purchase 40
--$1 will buy less S.Korean won