Suppose that U$.$S$.$ general price level has increased $6\%$ annually on average during the past $20$ years while the price level in Canada has increased $4\mathrm{.}5\%$ annually on average. Which of the following is correct?

Question $7$ options:

$1)$

Relative Purchasing Power Parity predicts appreciation of US dollar against Canadian dollar in this situation.

$2)$

Absolute purchasing power parity predicts appreciation of US dollar against Canadian dollar in this situation.

$3)$

Relative purchasing power parity predicts depreciation of US dollar against Canadian dollar in this situation.

$4)$

No theory provides prediction on exchange rate change in this situation.