1-The theory of PPP suggests that if one country's price level falls relative to another's, its currency should ________.

a.appreciate

b.float

c.do none of the above

2-Suppose that the Bank of Canada sells bonds to the chartered banks. Everything else held constant, this will cause the demand for Canadian assets to ________ and the Canadian dollar will ________.

a.increase; appreciate

b.increase; depreciate

c.decrease; appreciate

3-Suppose a report was released today that showed the Euro-Zone inflation rate is running above the European Central Bank's inflation rate target. This leads people to expect that the European Central Bank will enact contractionary policy in the near future. Everything else held constant, the release of this report would immediately cause the demand for Canadian assets to ________ and the Canadian dollar will ________.

a.increase; depreciate

b.decrease; appreciate

c.decrease; depreciate