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The last time The Economist checked, a Big Mac costs $5.65 in the US while it costs 13.43 zloty (PLN) in Poland. If the actual exchange rate is 3.91 PLN/USD, then the Polish Zloty is _____ relative to the (Big Mac) PPP. The Polish Zloty should change by percent so that we reach the Law of One Price (Purchasing Power Parity) for the Big Mac.

The last time The Economist checked, a Big Mac costs $5.65 in the US while it costs 13.43 zloty (PLN) in Poland. If the actual exchange rate is 3.91 PLN/USD, then the Polish Zloty is _____ relative to the (Big Mac) PPP. The Polish Zloty should change by percent so that we reach the Law of One Price (Purchasing Power Parity) for the Big Mac.

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please explain to me the reasoning behind the correct answers and if you can please highlight the correct choice

The last time The Economist checked, a Big Mac costs $5.65 in the US while it costs 13.43 zloty (PLN) in Poland. If the actual exchange rate is 3.91 PLN/USD, then the Polish Zloty is relative to the (Big Mac) PPP. The Polish Zloty should change by percent so that we reach the Law of One Price (Purchasing Power Parity) for the Big Mac. a. Undervalued; -39.2% b. Undervalued; -64.3% c. Overvalued; +39.2% d. Overvalued; +64.3%
Transcribed Image Text:The last time The Economist checked, a Big Mac costs $5.65 in the US while it costs 13.43 zloty (PLN) in Poland. If the actual exchange rate is 3.91 PLN/USD, then the Polish Zloty is relative to the (Big Mac) PPP. The Polish Zloty should change by percent so that we reach the Law of One Price (Purchasing Power Parity) for the Big Mac. a. Undervalued; -39.2% b. Undervalued; -64.3% c. Overvalued; +39.2% d. Overvalued; +64.3%
Under a flexible exchange rates, rise in the domestic real interest rate would cause a in the exchange rate (foreign currency relative to in net financial inflows and a domestic currency). fall; rise rise; fall fall; fall rise; rise
Transcribed Image Text:Under a flexible exchange rates, rise in the domestic real interest rate would cause a in the exchange rate (foreign currency relative to in net financial inflows and a domestic currency). fall; rise rise; fall fall; fall rise; rise
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