Suppose that the current spot exchange rate of Canadian dollars for Russian rubles is $0.15/1ruble. The price of Russian-produced goods increases by 8 percent, and the Canadian price index increases by 3 percent. According to PPP, the 8 percent rise in the price of Russian goods relative to the 3 percent rise in the price of Canadian goods results in a(n)

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According to Purchasing Power Parity (PPP), the exchange rate should adjust to offset differences in inflation rates. The Russian inflation rate is 8%, and the Canadian inflation rate is 3%, resulting in a relative inflation difference of 5%. This implies a depreciation of the Russian ruble by 5%.

Suppose That the Current Spot Exchange Rate of Canadian Dollars