1. Imagine that Canada is having a problem with the level of prices rising. Its inflation rate is high but its neighbor to the south, the United States has been experiencing declining inflation and now has a low inflation rate compared to Canada. Canada is the U.S.'s largest trading partner. Purchasing Power Parity Theory would indicate that the inflation in Canada would move the Canadian dollar's value over time and would have an effect on trade flows with the U.S.Explain what would happen for each of the following given the information presented above.

Canada's currency value relative to the U.S. dollar:

Volume of Imports into Canada from the U.S.:

Volume of Exports from Canada to the U.S.

Would the impact with the U.S. be the same with all other countries? Why or why not.