Suppose Inflation Is Higher in Canada Over the Next Few

question 65

Multiple Choice

Suppose inflation is higher in Canada over the next few months than in foreign countries, and exchange rates are given in terms of how much foreign currency a dollar buys or how many foreign goods Canadian goods buy. According to purchasing-power parity, which of the following should we expect to see?

• A)Only the nominal exchange rate depreciates.
• B)Both the real and nominal exchange rates appreciate.
• C)Both the real and nominal exchange rates depreciate.
• D)Only the real exchange rate appreciates.

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Definitions:

Emperor

The sovereign ruler of an empire, commanding great authority and power.

Tivoli

A town in Italy, known for its historical sites, including the Roman ruins of Villa Adriana and the Renaissance architectural complex Villa d'Este.

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Roman Emperor from 117 to 138 A.D., known for constructing Hadrian's Wall which marked the northern limit of Britannia.

Architectural Coffering

A series of sunken panels in the shape of squares, rectangles, or octagons in a ceiling, soffit or vault, used as a decorative element in classical architecture.