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Suppose the Price Level in Canada (P)and the Nominal Exchange

question 79

Essay

Suppose the price level in Canada (P)and the nominal exchange rate (e)between the Canadian dollar and the foreign currency remain the same,while the price level abroad increases from P₁* to P₂*.Let the real exchange rate be X.What is the percentage change in the real exchange rate?

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Definitions:

Semiannual Coupon

Interest payments made to bondholders twice a year.

Yield

The income return on an investment, such as the interest or dividends received, typically expressed as an annual percentage of the investment cost.

Maturity Bond

A bond at the end of its term, at which point the principal amount is due to be paid back to the bondholder.

Coupon Bond

A type of bond that pays the holder periodic interest payments based on the stated coupon rate and then returns the principal at maturity.

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