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Chapter 7International Parity Conditions■Questions7-1.Purchasing Power Parity. Define the following terms:a.The law of one price. b.Absolute purchasing power parity. If the law of one price were true for all goods and services, the c.Relative purchasing power parity. If the assumptions of the absolute version of PPP theory are 7-2.Nominal Effective Exchange Rate Index. Explain how a nominal effective exchange rate index is constructed.