Using data from The Economist's Big Mac Index for 2019, the following table shows the local currency price of a Big Mac in several countries as well asthe actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would have cost you $5.74 in theUnited States and GBP 3.29 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.25 per pound. Thedollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows:Dollar price of a Big Mac in the United Kingdom = GBP 3.29 ×= $4.11For 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 overfor 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.ArgentinaSwitzerlandUnited KingdomPolandChinaLocal Price(Foreign currency)$1.25GBP 1.00120.006.503.2910.8021.00Big Mac Index: January 2019Actual Exchange Rate(Dollars per unit of foreign currency)0.021.011.250.260.14Dollar Price(Dollars)4.112.812.94 Source: "The Big Mac Index, Our Interactive Currency Comparison Tool," The Economist, last modified January 10, 2019, accessed September 27, 2019,https://www.economist.com/news/2019/07/10/the-big-mac-index.Purchasing-power parity (PPP) theory states that exchange rates would need to equalize the prices of goods in any two countries. For the dollar priceof a Big Mac to be the same in both countries, a U.S. citizen would need to be able to convert $5.74 into exactly GBP 3.29. To find the exchange rateat which hamburger purchasing power is the same in both countries, divide the price in the United States by the price in the United Kingdom:PPP Exchange Rate (U.S. Dollars per British pound)$5.74GBP 3,29= $1.74 per pound=The exchange rate that would have equalized the dollar price of a Big Mac in the United States and Argentina (that is, the PPP exchange rate for BigMacs) is. This change would mean that the peso hadagainst the dollar.If Big Macs were a durable good that could be costlessly transported between countries, which of the following would present an arbitrageopportunity? Check all that apply.Exporting Big Macs from Argentina to the United States☐ Exporting Big Macs from Switzerland to PolandExporting Big Macs from Switzerland to China

Purchasing power parties (PPPs) are the rates of currency change that try to equalize the purchasing power of various currencies, by killing the distinctions in cost levels between nations. Dollar Price in Argentina = Local price × Actual exchange rate Dollar price in Argentina = 120×0.02 Dollar Price in Argentina = 2.4 Dollar Price in Switzerland = Local price × exchange rate Dollar price in Switzerland = 6.50 × 1.01 Dollar price in Switzerland = 6.57PPP exchange rate = Price of Big Mac in United States/Price of Big Mac in Argentina PPP exchange rate = $4.11/2.4 PPP exchange rate = 1.71 per Argentine peso The exchange rate that would have equalized the dollar price of a Big Mac in the United States and Argentina (that is, the PPP exchange rate for Big Mac) is 1.71. The change would mean that the real had appreciated against the Dollar. Therefore, the correct option is Exporting Big Macs from Argentina to the United States

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Using data from The Economist's Big Mac Index for 2019, 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 $5.74 in the United States and GBP 3.29 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.25 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: Dollar price of a Big Mac in the United Kingdom = GBP 3.29 × = $4.11 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 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. Argentina Switzerland United Kingdom Poland China Local Price (Foreign currency) 120.00 6.50 3.29 10.80 $1.25 GBP 1.00 21.00 Big Mac Index: January 2019 Actual Exchange Rate (Dollars per unit of foreign currency) 0.02 1.01 1.25 0.26 0.14 Dollar Price (Dollars) 4.11 2.81 201

Using data from The Economist's Big Mac Index for 2019, 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 $5.74 in the United States and GBP 3.29 in the United Kingdom. The actual exchange rate between the British pound and the U.S. dollar was $1.25 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: Dollar price of a Big Mac in the United Kingdom = GBP 3.29 × = $4.11 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 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. Argentina Switzerland United Kingdom Poland China Local Price (Foreign currency) 120.00 6.50 3.29 10.80 $1.25 GBP 1.00 21.00 Big Mac Index: January 2019 Actual Exchange Rate (Dollars per unit of foreign currency) 0.02 1.01 1.25 0.26 0.14 Dollar Price (Dollars) 4.11 2.81 201

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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