Suppose that the exchange rate of the euro in terms of the dollar is 1.5769. According to PPP, what will

happen to the exchange rate (increase, decrease, or stay unchanged) under each of the following circumstances? In each

case, which currency will appreciate and which will depreciate and by how much, and what is the level of the new

exchange rate.

a)

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

b)

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

c)

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