1. If the Fed fails to achieve low and steady inflation, why will it be hard to achieve stable foreign exchange rates? In answering, take into account the purchasing power parity theory of exchange rates.
2. If the exchange rate between the Japanese yen and the dollar changes from ¥85 = $1 to ¥95 = $1, will this make U.S. industries more or less competitive relative to Japanese industries? Briefly explain.