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Suppose PPP holds. Initially 85 yen (¥) buys the same in Japan as 1 Canadian dollar (C$) buys in Canada.

(a) What is the nominal exchange rate between the ¥ and the C$?

(b) There is then 3% inflation in Japan and 11% inflation in Canada. (This could occur over the course of just one year or over the course of multiple years, it doesn’t matter.) What is the nominal exchange rate after this inflation? Give the exchange rate to one decimal and in per C$1 terms.

(c) Did the Japanese yen appreciate or depreciate (in a nominal sense) over this period?

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