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1. In the UK a Big Mac burger costs 3.19. In the highly attractive tourist island of Dreamland, it costs 18.98 local currency units (LCUs).
1. In the UK a Big Mac burger costs 3.19. In the highly attractive tourist island of Dreamland, it costs 18.98 local currency units (LCUs). The current actual exchange rate (bank conversion price of the sterling pound) is 1 to 4 LCUs of Dreamland. If the Purchasing Power Parity theory is correct in the long run, do you expect Dreamland's LCU to appreciate or depreciate vis--vis the sterling pound?
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