1. Suppose that in a given year, inflation in the US is 4 percent and inflation in Canada is 1 percent. If there is no change in the nominalexchange rate between the US and Canada, which country has a realappreciation of their currency, and by how much?
2. The following statements are taken from a recent newspaper article about the Chinese economy. For each statement, write either "A" if it is likely to lead to a nominal appreciation fo Chinese currency, or "D" if it is likely to lead to depreciation. Pick oneof the items and provide a brief explanation of why you would think it would lead to either appreciation or depreciation.

a) China's exports were stable in September, while imports fell 10.9 percent; the trade surplus for the month rose to $45.6 billion.

b) There is increasing pressure for more government stimulus to help boost the country's GDP growth.

C) Inflation is quite low by developing world standards: Chinese inflation has fallen from close to 10 percent a decade ago to less than 2 percent today.