Question: (a) Assume the inflation rate in Canada to be 5 percent per year for the indefinite future. How much would a Canadian dollar at the end of 10 years be worth in terms of today's dollar? How much at the end of 30 years? At the end of 60 years?
(b) A packet of cigarettes today costs $1. Assuming the price of cigarettes to go up with inflation, how much would a packet cost in 10 years? In 30 years? In 60 years?
(c) Assume the inflation rate in Germany to be 2 percent for the indefinite future. Today, DMl is worth C$0.65. How much would you expect DM 1 to be worth in Canadian dollars at the end of year 10, or, in other words, what would you expect the exchange rate between German marks and Canadian dollars to be 10 years hence? At the end of 30 years? After 60 years?