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

question 125

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:

Retailer

A business or person that sells goods to consumers, acting as a final link in the distribution chain between manufacturers and end-users.

Atmospherics

Sensory-based stimuli within a retailer’s environment—the sights, sounds, smells, and other attributes—that project an image and draw customers to the store.

Gamification

The application of typical elements of game playing (e.g., point scoring, competition with others, rules of play) to other areas of activity, typically as an online marketing technique to encourage engagement with a product or service.

Catalog Marketing

A retail sales technique used to group many items together in a printed piece or an online store.