Suppose the Price Level in Canada Was P = 124

question 198

Essay

Suppose the price level in Canada was P = 124 last year and it is up by 3 points this year. In the U.S., the price level was 112 last year and it is up by 2 points this year. The exchange rate was US$0.96 per C$1 last year. (For the following calculations, approximate all results to two decimals.)
a. Calculate the inflation rates in Canada and the U.S.
b. Calculate the real exchange rate at the beginning of the period.
c. Calculate the nominal exchange rate at the end of the period, assuming that the real exchange rate has not changed.
d. Compare the rate of change in the exchange rate with the difference between the foreign and domestic inflation rates. Are they equal?

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Definitions:

Consistency

The quality of maintaining the same principles, actions, or conditions over time, ensuring reliability and predictability.

Concise Language

The use of few words without sacrificing clarity or meaning, aiming for efficiency and effectiveness in communication.

Salt Intake

The total quantity of salt (sodium chloride) consumed by an individual, relevant to dietary health and management of blood pressure.

Blood Pressure

the force exerted by circulating blood on the walls of blood vessels, measured to assess cardiovascular health.