Describe theory of purchasing power parity, Microeconomics

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Question 1:

(a) Using examples, explain how the theory of Purchasing Power Parity conforms to the Law of One Price.
(b) According to you, how best does the Theory of Purchasing Power Parity explain exchange rates?
(c) What are the factors influencing exchange rates in the long run?

Question 2:

The main difference between Federal Reserve System and other government agencies in the United States is its independence.

Describe why the Central Bank is expected to be more independent.


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