Part II: Short Essay Questions (25 points) 1. Absolute PPP does not do a very good job explaining exchange rate behaviour in the short run. Give and fully explain three reasons for this failure. 2. Explain the concept of a nominal anchor. Then explain how, for some countries, the exchange rate can be used as a nominal anchor. How is this related to the trilemma? 3. In the context of international finance, what is exchange rate overshooting and why does it happen? 4. Evaluate the following statement: Higher nominal interest rates are associated with an appreciating exchange rate. Do you agree, disagree, or both? Explain. 5. Explain why a nation with a current account deficit is a net external borrower, while a nation with a current account surplus is a net external lender. I expect thoughtful, well-written answers. Use graphs or equations if you want to make