a) discuss in detail the exchange rate equilibrium on purchasing power parity theory and monetary theory. (10 marks)

b) within the Mundell-Fleming, Assuming imperfect capital mobility, analyze the effect of a positive shock to money demand (i.e., increase in the demand of money for given levels of income and interest rate). By using the appropriate graph:

i) the effect of the shock on the income when the fixed exchange rate ( 8 marks)

ii) the effect of the shock on the income when the flexible exhange rate (8 marks)

iii) compare between the answer (i) and (ii), give your conclusion. (5 marks)