Suppose the Real Exchange Rate X Between Canada and the U.S

question 94

Essay

Suppose the real exchange rate X between Canada and the U.S. is constant. Let the price level in Canada be P, the price level in the U.S. be P*, and the nominal exchange rate be
e. Suppose the price level in Canada increases from P1 to P2 and the price level in the U.S. increases from P1* to P2*. Show that the rate of change in e, which is equal to (e2 - e1)/e1 × 100 is approximately equal to the difference in the inflation rates in the two countries. Note that the nominal exchange rate is e = XP*/P. What have you learned from this exercise?

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Definitions:

Insulin Secretion

The process by which the pancreas releases insulin, a hormone that regulates glucose levels in the blood.

3' Trailing Sequences

Sequences at the 3' end of a nucleic acid molecule that do not code for protein but can have roles in regulating gene expression and stability of the molecule.

Stop Codon

Any of the three codons in mRNA that do not code for an amino acid (UAA, UAG, or UGA) but signal the termination of translation. Compare with start codon.

Pre-rRNA Molecules

Precursor molecules to ribosomal RNA that undergo processing to become mature rRNA, a key component of ribosomes.