Question

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)

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)

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...

Assume the price of a Big Mac in the U.S. is $5.99 and the
price in Turkey is 29 Turkish Lira (TRY). Thus, according to PPP
and the Law of One Price, at the current exchange rate the TRY
is: A. undervalued B. Insufficient information to answer this
question C. correctly valued D. overvalued

Consider the following table, adapted from the Big Mac Index
computed by The Economist magazine. The table shows prices of a Big
Mac in local currencies and the current nominal exchange rate
between the local currency and the Canadian dollar.
Country
Big Mac Price
In local currency
Implied PPP
Rate +
Today’s Exchange rate
IC $=
Over (+)/ Under (-) Valuation against the C$, % ++
Canada (C$)
3.73
1.0000 , ----
Argentina (Peso)
14
3.9525
Australia (A$)
4.35
1.0684...

The Economist magazine uses the price of a Big Mac to
determine whether a currency is undervalued or overvalued. In July
2017, the price of a Big Mac was $5.30 in New York, 19.80 yuan
in Beijing, and 6.50 Swiss francs in Geneva. The exchange rates
were 6.79 yuan per U.S. dollar and 0.96 Swiss francs per U.S.
dollar.
The price of a Big Mac in different countries _______ provide a
valid test of purchasing power parity because _______.
A....

Suppose Big Mac costs 120 pesos in Mexico City and 6 pounds in
London. If the current exchange rate is 25 pesos per pound, then
according to law of one price, pound is ______ and should _______
in the long run.
undervalued; appreciate
overvalued; depreciate
overvalued; appreciate
undervalued; depreciate

If the price of a Big Mac in the country of Hatchland is 4.25
Hatch dollars ($H4.25), the price of a Big Mac in the US is $5.30,
and the exchange rate between the $H and the $ is $1.10/$H,
assuming a Big Mac is a good representation of the cost of goods in
both countries, according to PPP is the Hatch dollar overvalued,
undervalued, or correctly valued. Please show your calculations to
prove your argument. (4 points)

4. The Economist publishes annually the ”hamburger standard” by
which they compare the prices of the McDonalds Corporation Big Mac
hamburger around the world. The index estimates the exchange rates
for currencies based on the assumption that the burgers in question
are the same across the world and therefore, the price should be
the same. A Big Mac costs USD2.54 in the United States and JPY294
in Japan. The current exchange rate is 124 Japanese yen per U.S.
dollar.
(a)...

In Norway, a Big Mac costs 65 Norwegian Krone (NOK), while in
the United States, the average cost is $5.71. The implied
(Purchasing Power Parity) exchange rate is ___________. The current
exchange rate is NOK 9.09/$. The $ cost of a Big Mac in Norway at
the current exchange rate is ___________. The NOK is
_____________.
Group of answer choices
NOK11.3835/$; $7.15; 25.2% overvalued.
NOK11.3835/$; $7.15; 25.2% undervalued.
NOK 11.3835/$; $5.71; correctly valued.
None of the above.

The British pound is currently trading at $1.26. Currently the
price of a Big Mac in Great Britain Is £3.19 and the price of a Big
Mac in the United States is $3.99. Calculate the real exchange rate
for Big Macs between the two countries. Briefly explain what
economic theory would predict would occur to prices in both
countries and the nominal exchange rate if the exchange rate given
your answer?

The British pound is currently trading at $1.26. Currently the
price of a Big Mac in Great Britain Is £3.19 and the price of a Big
Mac in the United States is $3.99. Calculate the real exchange rate
for Big Macs between the two countries. Briefly explain what
economic theory would predict would occur to prices in both
countries and the nominal exchange rate if the exchange rate given
your answer?

ADVERTISEMENT

Get Answers For Free

Most questions answered within 1 hours.

ADVERTISEMENT

asked 10 minutes ago

asked 17 minutes ago

asked 24 minutes ago

asked 48 minutes ago

asked 52 minutes ago

asked 54 minutes ago

asked 55 minutes ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago

asked 1 hour ago