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1. a. Explain what PPP is, what it assumes, why these assumptions mean it may not hold in the real world, and when it tends

1. a. Explain what PPP is, what it assumes, why these assumptions mean it may not hold in the real world, and when it tends to hold and why. Discuss crucial reasons it will tend to break down.

b. Explain what the Real Exchange Rate is, and how it is different from PPP. What is the implication for the Real Exchange Rate if PPP holds? Explain why. (Answer all parts! Please!)

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