According to the purchasing power parity theory, a rise in Canada price level of 5 percent, and a rise in the Mexican price level of 6 percent cause ________.

Question

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According to the purchasing power parity theory, the exchange rate adjusts to offset changes in price levels between two countries. If Canada's price level rises by 5% and Mexico's by 6%, the peso should depreciate by 1% relative to the dollar, meaning the dollar appreciates by 1% relative to the peso.

According to the Purchasing Power Parity Theory, a Rise in Canada