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4. Assume that the Canadian dollar's spot rate is $0.85 and that the Canadian and U.S. inflation rates are similar. Then assume that Canada
4. Assume that the Canadian dollar's spot rate is $0.85 and that the Canadian and U.S. inflation rates are similar. Then assume that Canada experiences 4 percent inflation, whereas the United States experi- ences 3 percent inflation. According to PPP, what will be the new value of the Canadian dollar after it adjusts to the inflationary changes? (You may use the approxi- mate formula to answer this question.)
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