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Question
Suppose the inflation rate in Canada is 1 percent and the inflation rate in Mexico is 3 percent. If the nominal exchange rate in terms of Mexican pesos per Canadian dollar falls by 4 percent, by how much will the real exchange rate (in terms of Mexican goods per Canadian good) change?a. +6 percent
b. +2 percent
c. −2 percent
d. −6 percent
Answer
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