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1. What is the concept of the Law of One Price? 2. What is absolute PPP? What is relative PPP? 3. What is the rationale

1. What is the concept of the Law of One Price?

2. What is absolute PPP? What is relative PPP?

3. What is the rationale behind PPP?

4. What are some possible explanations for the deviations from the purchasing power parity?

5. Assume Big Mac is the only item in the consumption basket. If the Big Mac costs $10 in the U.S. and 5 in the U.K., and the exchange rate between two currencies is $1.8/, does the absolute PPP hold?

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