Suppose that the euros exchange rate in terms of the Canadian dollar is 1.5769. According to PPP, what will happen to the exchange rate under each of the following circumstances? In each case, which currency (the dollar or euro) will appreciate or depreciate and by how much, and what is the level of the new exchange rate.

1. The Canadian price level increases by 10 percent and the price level in Europe stays constant.

2. The Canadian price level increases by 10 percent and the price level in Europe increases by 20 percent.

The Canadian price level decreases by 10 percent and the price level in Europe increases by 5 percent.