Consider the following table. A Big Mac in the US cost USD5.66 in January 2021. Given the cost of Big Mac and corresponding exchange rates of the countries below, compute for the implied PPP exchange rate, and indicate whether the country's domestic currency is overvalued or undervalued vis-à-vis the USD. Country Norway South Korea Switzerland Taiwan Vietnam Local cost of Big Mac 52 Nkr 4,500 won 6.50 SFr 72 NT$ 66,000 dong Exchange rate (local cur- rency/USD) 8.54 1,097.35 0.89 27.98 23,064 PPP exchange rate (local cur- rency/USD) Overvalued or undervalued? Overvalued or undervalued by how much (%)?

Consider the following table. A Big Mac in the US cost USD5.66 in January 2021. Given the cost of Big Mac and corresponding exchange rates of the countries below, compute for the implied PPP exchange rate, and indicate whether the country's domestic currency is overvalued or undervalued vis-à-vis the USD. Country Norway South Korea Switzerland Taiwan Vietnam Local cost of Big Mac 52 Nkr 4,500 won 6.50 SFr 72 NT$ 66,000 dong Exchange rate (local cur- rency/USD) 8.54 1,097.35 0.89 27.98 23,064 PPP exchange rate (local cur- rency/USD) Overvalued or undervalued? Overvalued or undervalued by how much (%)?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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