B1. Do not use any formulas in your answer to this question! Suppose that the Lebanese

inflation rate is high (~50 percent over one year), and the inflation rate in EU is low.

According to the relative PPP, what should happen over the year to the Lebanese pound's

ER against the Euro? Make sure you use only words in your answer, and explain what

purchasing power parity is. What is the difference between its absolute and relative

versions?

B2. Explain why the Economist magazine decided to improve its Big Mac Index by

incorporating differences in standards of living across countries. In your answer, explain

what Big Mac index is and how one can use this index to measure how over- or undervaluaton

of a currency.

Please answer both parts with proper explanation