Problem 4. 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) 3 Overvalued or undervalued? Overvalued or undervalued by how much (%)?
Problem 4. 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) 3 Overvalued or undervalued? Overvalued or undervalued by how much (%)?
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Problem 4. 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 SFT
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)
3
Overvalued or
undervalued?
Overvalued or
undervalued
by how much
(%)?
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