Answer question 3. Please l need the calculation step by step

Explain shortly the following expressions in the context of this course: a. optimum currency area b. the theory behind convergence in per capita incomes (explain the theoretical basis for such convergence to occur) c. national saving d. forward exchange rate e. doom loop Present three major claims (or arguments) in favor of a country having floating exchange rates. List these and explain them. Suppose absolute purchasing power holds true between two countries, Home and Foreign, and the price level increases 5% in Home and it increases by 6% in Foreign. (a) What happens to the price of Foreign's currency in terms of Home's currency? Give the exact numerical change and show how you come up with your answer. Also, mention whether your answer indicates an appreciation of Home's currency or a depreciation of it. (b) Suppose the real exchange rate is calculated using price levels found for the same basket of goods in Home and in Foreign, using current-year prices. What is the real exchange rate between these two countries' currencies? Assume that national income, Y, is exogenously set at one fixed level (full employment) in both-the short-run and in the long-run, and that the exchange rate is floating. Assume also that prices are sticky (the price level changes slowly over time toward its long-run equilibrium) The money supply has a zero growth rate. In each part of this question, you are asked to consider a change in money demand. That change is assumed to always be unanticipated, but once the change occurs, it is publicly known. Assume that the economy is initially in a state of long-run equilibrium. To help explain your answer to questions (a) and (b), use a separate graph in each that displays simultaneous equilibrium in the domestic money market and the foreign-exchange market (uncovered interest parity). (a) Show how a temporary decrease in money demand affects the domestic interest rate and exchange rate in the short-run. (b) Show how a permanent one-time decrease in money demand affects the domestic interest rate and exchange rate in the short-run and in the long-run, and indicate how these two latter variables move between the short run and the long run. Explain what causes any curves to shift. (c) On a graph with the exchange rate on the vertical axis and time on the horizontal axis, show the time path of the exchange rate after a permanent one-time decrease in money demand