Big Mac Index: January 2016 Local Price Actual Exchange Rate Dollar Price (Foreign currency) (Dollars per unit of foreign currency) (Dollars) Argentina 33.00 0.07 2.31 Norway 46.80 0.12 5.62 United Kingdom 2.89 1.63 4.71 Poland 9.60 0.36 3.46 China 17.60 0.16 2.82 Source: "Currency Comparison, To Go," The Economist, last modified January 7, 2016, accessed July 8, 2016, http://www.economist.com/blogs/graphicdetail/2016/01/daily-chart-7. Purchasing-power parity (PPP) theory states that exchange rates would need to equalize the prices of goods in any two countries. For the dollar price of a Big Mac to be the same in both countries, a U.S. citizen would need to be able to convert $4.93 into exactly GBP 2.89. To find the exchange rate at which hamburger purchasing power is the same in both countries, divide the price in the United States by the price in the United Kingdom: PPP Exchange Rate (U.S. Dollars per British pound) $4.93 GBP 2.89 $1.71 per pound The exchange rate that would have equalized the dollar price of a Big Mac in the United States and Argentina (that is, the PPP exchange rate for Big Macs) is This change would mean that the peso had against the dollar. If Big Macs were a durable good that could be costlessly transported between countries, which of the following would present an arbitrage opportunity? Check all that apply. O Exporting Big Macs from the United Kingdom to Poland Exporting Big Macs from Norway to China O Exporting Big Macs from Argentina to the United States
Big Mac Index: January 2016 Local Price Actual Exchange Rate Dollar Price (Foreign currency) (Dollars per unit of foreign currency) (Dollars) Argentina 33.00 0.07 2.31 Norway 46.80 0.12 5.62 United Kingdom 2.89 1.63 4.71 Poland 9.60 0.36 3.46 China 17.60 0.16 2.82 Source: "Currency Comparison, To Go," The Economist, last modified January 7, 2016, accessed July 8, 2016, http://www.economist.com/blogs/graphicdetail/2016/01/daily-chart-7. Purchasing-power parity (PPP) theory states that exchange rates would need to equalize the prices of goods in any two countries. For the dollar price of a Big Mac to be the same in both countries, a U.S. citizen would need to be able to convert $4.93 into exactly GBP 2.89. To find the exchange rate at which hamburger purchasing power is the same in both countries, divide the price in the United States by the price in the United Kingdom: PPP Exchange Rate (U.S. Dollars per British pound) $4.93 GBP 2.89 $1.71 per pound The exchange rate that would have equalized the dollar price of a Big Mac in the United States and Argentina (that is, the PPP exchange rate for Big Macs) is This change would mean that the peso had against the dollar. If Big Macs were a durable good that could be costlessly transported between countries, which of the following would present an arbitrage opportunity? Check all that apply. O Exporting Big Macs from the United Kingdom to Poland Exporting Big Macs from Norway to China O Exporting Big Macs from Argentina to the United States
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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can someone help me with the bottom part? i think i have the top figured out
Transcribed Image Text:Big Mac Index: January 2016
Local Price
Actual Exchange Rate
Dollar Price
(Foreign currency)
(Dollars per unit of foreign currency)
(Dollars)
Argentina
33.00
0.07
2.31
Norway
46.80
0.12
5.62
United Kingdom
2.89
1.63
4.71
Poland
9.60
0.36
3.46
China
17.60
0.16
2.82
Source: "Currency Comparison, To Go," The Economist, last modified January 7, 2016, accessed July 8, 2016,
http://www.economist.com/blogs/graphicdetail/2016/01/daily-chart-7.
Purchasing-power parity (PPP) theory states that exchange rates would need to equalize the prices of goods in any two countries. For the dollar price
of a Big Mac to be the same in both countries, a U.S. citizen would need to be able to convert $4.93 into exactly GBP 2.89. To find the exchange rate
at which hamburger purchasing power is the same in both countries, divide the price in the United States by the price in the United Kingdom:
PPP Exchange Rate (U.S. Dollars per British pound)
$4.93
GBP 2.89
$1.71 per pound
The exchange rate that would have equalized the dollar price of a Big Mac in the United States and Argentina (that is, the PPP exchange rate for Big
Macs) is
This change would mean that the peso had
against the dollar.
If Big Macs were a durable good that could be costlessly transported between countries, which of the following would present an arbitrage
opportunity? Check all that apply.
O Exporting Big Macs from the United Kingdom to Poland
Exporting Big Macs from Norway to China
O Exporting Big Macs from Argentina to the United States
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