"Turkey has cut interest rates for the second month running as president Recep Tayyip Erdoan seeks to prioritise growth over financial stability ahead of next year's elections. The central bank announced on Thursday that it was lowering its benchmark one-week repo rate from 13 per cent to 12 per cent despite rampant inflation that exceeded 80 per cent in August. The lira hit a record low after the announcement, falling to 18.387 against the dollar...Atilla Yeilada, a prominent economic commentator, said the move, which comes at a time when central banks around the world have been raising borrowing costs, showed that Turkey's central bank had "gone off the rails"."("Turkey's central bank cuts rates despite rampant inflation",FinancialTimes,22Sept2022)

1. Write a simple mathematical expression of the Purchasing Power Parity condition (PPP), define its components, and explain what it means.

1. What is PPP's prediction for the lira given that inflation is rising in Turkey? In other words, is the lira most likely to appreciate or depreciate relative to the USD or the euro? Explain.

1. Does your answer to (b) above imply that interest rates in Turkey should increase or decrease? Write a simple mathematical expression of the Interest Parity condition and explain briefly how it helps answer the question.