The table below shows hypothetical prices of a tall Starbucks latte in countries around the world. Using the data, and the fact that a latte costs $3 in the United States, calculate how much a country's currency is under- or overvalued according to purchasing power. First, calculate the implied exchange rate for each country. Next, calculate the "latte index" for each country using the Big Mac Index. formula from the chapter. Instructions: Round your answers to two decimal places. Official exchange Country Thailand Argentina United Kingdom Japan Price 60 baht 15 peso (s) 2 pound(s) 450 yen rate 30 baht/dollar 6 pesos/dollar 0.5 pounds/dollar. se yen/dollar Implied exchange rate if PPP holds baht/dollar 20.67 4.00 .67 145.00 pesos/dollar pounds/dollar yen/dollar = Cost of U.S. latte 20.50 * % 42.86 * % 40.30 *% %

The table below shows hypothetical prices of a tall Starbucks latte in countries around the world. Using the data, and the fact that a latte costs $3 in the United States, calculate how much a country's currency is under- or overvalued according to purchasing power. First, calculate the implied exchange rate for each country. Next, calculate the "latte index" for each country using the Big Mac Index. formula from the chapter. Instructions: Round your answers to two decimal places. Official exchange Country Thailand Argentina United Kingdom Japan Price 60 baht 15 peso (s) 2 pound(s) 450 yen rate 30 baht/dollar 6 pesos/dollar 0.5 pounds/dollar. se yen/dollar Implied exchange rate if PPP holds baht/dollar 20.67 4.00 .67 145.00 pesos/dollar pounds/dollar yen/dollar = Cost of U.S. latte 20.50 * % 42.86 * % 40.30 *% %

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

Similar questions

Draw the exchange market where dollars trade for British Pounds, with the equilibrium exchange rate at $1.18 and the equilibrium total amount of Pounds traded at 10 million. a> Assume that people in Britain become pessimistic about visiting, buying from, or investing in the United States. How will this market be affected? (i.e., which curve(s) will shift, and in which direction?) b> What will happen to the equilibrium quantity of Pounds traded after the event in part a? What will happen to the equilibrium exchange rate?
Data from The Economist BigMac index from January 2022 shows that the localprice of a Big Mac in Argentina is 450 Argentine pesos (ARS) and the price of a BigMac in Britain is 3.59 pounds sterling (GBP). The exchange rate XARS/GBP = 140.895.Assume there is no bid-ask spread. Calculate the pound sterling price of a Big Mac in Buenos Aires (capital ofArgentina) and the Argentine peso price of a Big Mac in London (capital ofthe UK)
If a country consistently runs net export surpluses, then what will happen to its exchange rate?
According to a survey ("Big MacCurrencies," The Economist, April 17th 1993), in 1993, the average price of a Big Mac in the U.S. was $2.28. In Japan, Big Mac fans had to fork out ¥391 for this feast. What was the PPP implied exchange rate between the $ and the ¥?
How can the Big Mac Index explain the ability of a country's exchange rate? And how does the Big Mac Index relate to The Law of One Price?
The Jamaican government is contemplating implementing a tariff for imported goods. Consider the Mundell Fleming - IS-LM Analyses with the exchange rate (e) on the vertical axis instead of interest rates (r) and the LM curve is perfectly inelastic. (a) Assume you are in an open economy with floating exchange rates. With the aid of carefully labeled diagrams, use the Mundell Fleming - IS-LM Analyses to illustrate the impact of an increase in tariffs on the exchange rate e, output Y. Explain your answer thoroughly. (b) Assume you are in an open economy now with fixed exchange rates. With the aid of carefully labeled diagrams, use the Mundell Fleming - IS-LM Analyses to illustrate the impact a tariff on the exchange rate e, output Y. Explain your answer thoroughly. (c) Which of the Two exchange rate regimes are better considering the results form parts (a) and (b), explain?
EXCHANGE RATE (Dollars per euro) The following graph shows the short-run supply schedule (S,) and demand schedule (D) for the euro. S, denotes the long-run supply schedule of euros. The initial equilibrium exchange rate is $1.20 per euro. Suppose that the demand for euros increases to D,. On the graph, use the tan point (dash symbol) to indicate the short-run equilibrium exchange rate. Then use the grey point (star symbol) to indicate the long-run equilibrium exchange rate. Note: Dashed drop lines will automatically extend to both axes. The following graph shows the short-run supply schedule (So) and demand schedule (Do) for the euro. Si denotes the long-run supply schedule of euros. The initial equilibrium exchange rate is $1.20 per euro. Suppose that the demand for euros increases to D1. On the graph, use the tan point (dash symbol) to indicate the short-run equilibrium exchange rate. Then use the grey point (star symbol) to indicate the long-run equilibrium exchange rate. Note:…