Using data from The Economist's Big Mac Index for 2011, the following table shows the local currency price of a Big Mac in several countries as well as the actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would have cost you $4.07 in the United States and GBP 2.39 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.63 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: S1.63 Dollar price of a Big Mac in the United Kingdom= GBP 2.39 x GBP 1.0 = $3.90 For the price you paid for a Big Mac in the United States, you could have purchased a Big Mac in the United Kingdom and had some change left over for french fries! Complete the final column of the table by computing the dollar price of a Big Mac for the countries where this amount is not given. Note: Round your answers to the nearest cent. Big Mac Index: July 25, 2011 Local Price Actual Exchange Rate Dollar Price (Foreign currency) (Dollars per unit of foreign currency) (Dollars) The Eurozone 3.44 1.43 Norway 45.00 0.18 United Kingdom 2.39 1.63 3.90 Poland 8.63 0.36 3.11 China 14.70 0.16 2.35 Source: "Currency Comparison, To Go," The Economist, last modified July 28, 2011, accessed April 26, 13, http://www.economist.com/blogs/dailychart/2011/07/big-mac-index. Purchasing power parity (PPP) theory states that exchange rates adjust to equalize the prices of goods in any two countries. For the dollar price of a Big Mac in the United States and the United Kingdom to be identical, a U.S. citizen would need to be able to convert $4.07 into GBP 2.39 GBP exactly. 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: $4.07 GHP 2.39 = $1.70 per pounc PPP Exchange Rate (U.S. Dollars per British pound) The exchange rate that would have equalized the dollar price of a Big Mac in the United States and the Eurozone (that is, the PPP exchange rate for Big Macs) is - This change would mean that the dollar had against the euro.
Using data from The Economist's Big Mac Index for 2011, the following table shows the local currency price of a Big Mac in several countries as well as the actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would have cost you $4.07 in the United States and GBP 2.39 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.63 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: S1.63 Dollar price of a Big Mac in the United Kingdom= GBP 2.39 x GBP 1.0 = $3.90 For the price you paid for a Big Mac in the United States, you could have purchased a Big Mac in the United Kingdom and had some change left over for french fries! Complete the final column of the table by computing the dollar price of a Big Mac for the countries where this amount is not given. Note: Round your answers to the nearest cent. Big Mac Index: July 25, 2011 Local Price Actual Exchange Rate Dollar Price (Foreign currency) (Dollars per unit of foreign currency) (Dollars) The Eurozone 3.44 1.43 Norway 45.00 0.18 United Kingdom 2.39 1.63 3.90 Poland 8.63 0.36 3.11 China 14.70 0.16 2.35 Source: "Currency Comparison, To Go," The Economist, last modified July 28, 2011, accessed April 26, 13, http://www.economist.com/blogs/dailychart/2011/07/big-mac-index. Purchasing power parity (PPP) theory states that exchange rates adjust to equalize the prices of goods in any two countries. For the dollar price of a Big Mac in the United States and the United Kingdom to be identical, a U.S. citizen would need to be able to convert $4.07 into GBP 2.39 GBP exactly. 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: $4.07 GHP 2.39 = $1.70 per pounc PPP Exchange Rate (U.S. Dollars per British pound) The exchange rate that would have equalized the dollar price of a Big Mac in the United States and the Eurozone (that is, the PPP exchange rate for Big Macs) is - This change would mean that the dollar had against the euro.
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Using data from The Economist's Big Mac Index for 2011, the following table shows the local currency price of a Big Mac in several countries as well as
the actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would have cost you $4.07 in the
United States and GBP 2.39 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.63 per pound. The
dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows:
S1.63
Dollar price of a Big Mac in the United Kingdom= GBP 2.39 x
GBP 1.0
= $3.90
For the price you paid for a Big Mac in the United States, you could have purchased a Big Mac in the United Kingdom and had some change left over
for french fries!
Complete the final column of the table by computing the dollar price of a Big Mac for the countries where this amount is not given.
Note: Round your answers to the nearest cent.
Big Mac Index: July 25, 2011
Local Price
Actual Exchange Rate
Dollar Price
(Foreign currency) (Dollars per unit of foreign currency)
(Dollars)
The Eurozone
3.44
1.43
Norway
45.00
0.18
United Kingdom
2.39
1.63
3.90
Poland
8.63
0.36
3.11
China
14.70
0.16
2.35
Source: "Currency Comparison, To Go," The Economist, last modified July 28, 2011, accessed April 26, 13,
http://www.economist.com/blogs/dailychart/2011/07/big-mac-index.
Purchasing power parity (PPP) theory states that exchange rates adjust to equalize the prices of goods in any two countries. For the dollar price of a
Big Mac in the United States and the United Kingdom to be identical, a U.S. citizen would need to be able to convert $4.07 into GBP 2.39 GBP exactly.
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:
$4.07
GHP 2.39
= $1.70 per pounc
PPP Exchange Rate (U.S. Dollars per British
pound)
The exchange rate that would have equalized the dollar price of a Big Mac in the United States and the Eurozone (that is, the PPP exchange rate for
Big Macs) is
- This change would mean that the dollar had
against the euro.
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