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Am I right to assume you can enlarge .ai files without reducing the image quality? Are these vector files?

Also, can you click & drag the object to make it bigger or do you have to use the resize tool where you put in dimensions?

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You can import .ai files as Smart Objects that can be resized without any loss in quality by going to:

FILE (top menu) > PLACE

enter image description here

or on a Mac:

Photoshop (top menu) > PLACE

Yes, you can click and drag the object to make it bigger.

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