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Find the current prices of a Big Mac in China and U.S. Find the current nominal...

Find the current prices of a Big Mac in China and U.S. Find the current nominal exchange rate. According to the Big Mac Index, is RMB (or Chinese Yuan) currently overvalued or undervalued? By how much? (Show all the steps)

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Answer #1

Big Mac prices in US and China are not the same all across. In fact, they vary areawise. So taking average prices in China and US, which is 10.41 renminbi (RMB) and the U.S. price is $2.90. Hence the exchange rate as per the price of big mac should be  3.59 RMB for US$1.

However, the nominal exchange rate of RMB and US $ is around 7 RMB for US$1 (precisely 6.94 RMB as of 26 Jan 2020). Hence one can conclude that RMB is undervalued if considered from PPP perspective (purchasing power parity)

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