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Simulation plays a critical role in the development of self-driving cars, with several levels used to ensure effectiveness and safety. The first level involves model-in-the-loop simulation, where designs are tested using models before any actual code is produced. As development progresses, subsequent levels such as software-in-the-loop and hardware-in-the-loop simulation allow for more complex testing using actual code on different hardware setups. Each of these methods provides a framework to identify potential issues early on, saving time and costs associated with real-world testing.