Question
Currently, the average price of a Big Mac is RMB 22.50 in China and $5.20 in the U.S. The actual exchange rate is RMB 6.50/$.
- Currently, the average price of a Big Mac is RMB 22.50 in China and $5.20 in the U.S. The actual exchange rate is RMB 6.50/$. Please answer the following questions:
1) Where are hamburgers cheaper, in China or U.S.?
2) Calculate the PPP-implied exchange rate, based on the law of one price.
3) Based on the PPP, is the Chinese yuan overvalued or undervalued, and by how much?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
1 To determine where hamburgers are cheaper we need to compare the prices of Big Macs in China and the US Converting the prices to a common currency w...
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Step: 2
Step: 3
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Macroeconomics Principles Applications And Tools
Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez
7th Edition
978-0134089034, 9780134062754, 134089030, 134062752, 978-0132555234
