Question

In the US, the price of a Big Mac is $3.5. In China, the price of...

In the US, the price of a Big Mac is $3.5. In China, the price of a Big Mac is ￥12.

a. What is the exchange rate of Chinese Yuan under purchasing power parity?



b. What is the dollar price of Big Mac in China, if the actual exchange rate is $0.15/￥?




c. Is the Chinese Yuan overvalued or undervalued? By how much?



d. If China’s GDP in 2018 is ￥80 Trillion, what is its Nominal GDP in USD (use actual rate)? What is its Real GDP in USD (use PPP rate)?

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Answer #1

GIVEN THAT :-

According to the question we have ,

US, the price of a Big Mac is $3.5.

China, the price of a Big Mac is ￥12.

TO FIND :-A. What is the exchange rate of Chinese Yuan under purchasing power parity?

PPP Exchange Rate = 12Yuan / 3.5

= Yuan 3.4286 per Dollar

OR

=$ 1/ 3.4286 per Yuan I.e. 0.29166 Yuan.

TO FIND :-B. What is the dollar price of Big Mac in China, if the actual exchange rate is $0.15/￥?

Dollar Price in China

= Yuan 12 * 0.15

= 1.8 $

.Dollar Price in China=1.8 $.

TO FIND :-C. Is the Chinese Yuan overvalued or undervalued? By how much?

==> = 0.15 - 0.29166 / 0.29166

  = -0.4857

OR

=-48.57%

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