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1) Let's say that the current exchange rate between the South Korean won and the American dollar is 1050 won/$1. If a Big Mac costs

1) Let's say that the current exchange rate between the South Korean won and the American dollar is 1050 won/$1. If a Big Mac costs 3500 won in South Korea and $4.05 in the USA, and the price of Big Macs is representative of the relative price level in each nation, the real exchange rate is __________ won per dollar.

2) Consider again the information about the USA and South Korea from the previous question. The real exchange rate (in terms of won per dollar) is ______ than the nominal exchange rate and the dollar is __________ in nominal terms in South Korea.

a. higher; overvalued

b. higher; undervalued

c. lower; overvalued

d. lower; undervalued

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