Questions 1. (12 points) Explain the following equation where expected inflation (r) is defined as follows =-1 2. (i).Explain the followin equation (10 points) K+1 K+8Y-8K, = (ii).Is this production function characterized by constant returns to scale? Explain. (5 points Y=KL (iii). Explain the concept of convergence in growth theory (8 points) 3. We have such an economy as C I = M G = co+c(Y-T) do + dY mY Go ve X = Xo (i) Derive IS curve and draw it (12 points) (ii) What is the change in net export after an increase in goverment expen- diture? (12 points) 4. (i) Explain the interest rate parity (12 points) (ii) Explain the relative PPP (12 points) (iii) Explain the real exchange rate, Marshall-Lerner condition and J-curve? (12 points)