a) Checking outhttps://www.gasbuddy.com/it looks like if I want to get gas in the USA I can get some for $3.17 USD per Gallon right now, while it is $1.56 CAD per Liter near UFV. Given that there are 3.78 Liters in a Gallon, calculate the real exchange rate between a Canadian Liter of gas and an American Liter (not Gallon) of Gas, given that one Canadian Dollar currently buys about 0.80 American Dollars. (2)

b) Suppose an arbitrage opportunity did exist, and we followed the logic of Purchasing Power Parity, calculate what would happen in the long run if one of the three prices (your choice) could change. Show your work for full marks (2)

c) Give me 2 transaction costs that prevents Purchasing Power Parity from holding in real life for the above example (2)

d) Given that the Canadian Federal Government has increased spending significantly in the past few months, what effect will this have on NCO and the value of the Canadian dollar relative to the USA if i) the USA keeps their Government spending constant (3) or ii) increases their Government spending by a similar amount (2)