QUESTION 2 - Long Run Exchange Rate Determination and PPlP Suppose that PPP does NOT hold a) Explain the role of movements in the relative price of non-traded goods for real exchange rate fluctuations, using a simple decomposition of the real exchange rate into two components to illustrate your answer. b) How do real exchange rate movements affect equilibrium income, employment, interest rates, prices, wages, and the trade balance in the short and long run? Use diagrams to illustrate your answer. c) For what reasons might PPP not hold, i) in the short run, and ii) in the lonjg run? QUESTION 2 - Long Run Exchange Rate Determination and PPlP Suppose that PPP does NOT hold a) Explain the role of movements in the relative price of non-traded goods for real exchange rate fluctuations, using a simple decomposition of the real exchange rate into two components to illustrate your answer. b) How do real exchange rate movements affect equilibrium income, employment, interest rates, prices, wages, and the trade balance in the short and long run? Use diagrams to illustrate your answer. c) For what reasons might PPP not hold, i) in the short run, and ii) in the lonjg run