1.According to the theory of purchasing power parity, if the inflation rate in Australia is higher than the inflation rate in New Zealand, what should happen to the exchange rate between the Australian dollar and the New Zealand dollar? Briefly explain.

2.When the euro was introduced in January 1999, the exchange rate was CDN $1.72 per euro. In December 2015, the exchange rate was CDN$1.45 per euro. Was this change in the dollar-euro exchange rate good news or bad news for Canadian firms exporting goods and services to Europe? Was it good news or bad news for European consumers buying goods and services imported from Canada? Briefly explain.