Suppose the Price Level in Canada Was P = 124

question 15

Essay

Suppose the price level in Canada was P = 124 last year; it is up by 3 points this year. In the U.S., the price level was 112 last year; it is up by 2 points this year. The exchange rate was US$0.96 per C$1 last year. (For part a, approximate all results to two decimals.)
a) Compare the rate of change in the exchange rate with the difference between the foreign and domestic inflation rates. Are they equal?
b) In theory, the rate of change in the nominal exchange rate should be about the same as the inflation difference. Redo the calculations from part a, retaining this time at least four decimals in your intermediate results. Does your answer to the question in part a change?
c) What have you learned from this exercise?

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Definitions:

Honesty

The quality of being truthful, transparent, and sincere in one's dealings and communications.

Altruism

Altruism refers to the selfless concern for the well-being of others without expecting any reward or benefit in return.

Integrity

The quality of being honest and having strong moral principles, crucial for trustworthiness in social and professional settings.

Emotional Intelligence

The capability to recognize, understand, and manage one's own emotions and to comprehend and influence the emotions of others.