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: NOTE: here are the options for drop down questions for when u get there The exchange rate that would have equalized the dollar price of a Big Mac in the United States and Brazil (that is, the PPP exchange rate for Big Macs) is __________ ($0.43 per real OR $1.96 per deal OR $2.33 per real OR $2.63 per real). This change would mean that the dollar had ________ (appreciated OR depreciated) against the real. 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 overfor 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, 2011Local PriceActual Exchange RateDollar Price(Foreign currency) (Dollars per unit of foreign currency)(Dollars)Brazil9.500.65Norway45.000.18United Kingdom2.391.633.90Poland8.630.363.11China14.700.162.35Source: "Currency Comparison, To Go," The Economist, last modified July 28, 2011, accessed April 26, 2013, http://www.economist.com/blogs/dailychart/2011/07/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 $4.07 into exactly GBP 2.39. 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:$4.07PPP Ezchange Rate (U.S. Dollars per British pound)$1.70 рer poundThe exchange rate that would have equalized the dollar price of a Big Mac in the United States and Brazil (that is, the PPP exchange rate for Big Macs)is $0.43 per real. This change would mean that the dollar had appreciated v against the real.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 Poland to ChinaO Exporting Big Macs from the United States to BrazilO Exporting Big Macs from Norway to China 8. Purchasing-power parityUsing 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 asthe actual exchange rate betvween each country and the United States. At the time of the data collection, a Big Mac would have cost you $4.07 in theUnited 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. 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$1.63GBP 2.39 x GBP 100$3.90For 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 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, 2011Local PriceActual Exchange RateDollar Price(Foreign currency) (Dollars per unit of foreign currency)(Dollars)Brazil9.500.65Norway45.000.18United Kingdom2.391.633.90Poland8.630.363.11China14.700.162.35Source: "Currency Comparison, To Go," The Economist, last modified July 28, 2011, accessed April 26, 2013, http://www.economist.com/blogs/dailychart/2011/07/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 $4.07 into exactly GBP 2.39. 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:$4.07PPP Ezchange Rate (U.S. Dollars per British pound)= $1.70 per poundThe exchange rate that would have equalized the dollar price of a Big Mac in the United States and Brazil (that is, the PPP exchange rate for Big Macs). This change would mean that the dollar hadagainst the real.isIf 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.

(A) The dollar price of a Big Mac for a foreign country could be calculated by multiplying the Big…

Answered: Using data from The Economist's Big Mac…

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC