1. For a number of years, the magazine Economist measured the price of a Big Mac throughout the world and used these prices to explore whether currency values were too high or two low vis--vis the law of one price. Below table gives the results for some selected countries:

Country	Price of a Big Mac in local currency	Price of a Big Mac in Dollars	Predicted purchasing power exchange based on Big Mac pricing	Actual Exchange Rate
US	4.2 dollars	4.2	-	-
UK	2.49 pounds	3.82	0.59	0.65
China	15.4 yuan	2.44	3.67	6.32
Switzerland	6.5 Swiss Franc	6.81	1.55	0.96
Mexico	37.0 pesos	2.7	8.82	13.68
EU	3.44 euros	4.43	1.2	1.27

Comment on the exchange rate and NX of the countries!

Question 2 movie producer has an unlimited budget to hire a crew of 100 peopleto make a movie, and he can do the job in either the US or Canada. From his point of view a US-based crew and a Canada-based crew are equally good at producing movies. Suppose lm crew union contracts are such that Canadian workers earn $60,000 CAD and American workers earn $50,000 USD per movie. If exchange rates are such that $1 USD can buy $1.25 CAD, where will he make his movie? What would be the answer if CAD appreciates by 5%.

1. Suppose economists observe that an increase in government spending of Rs. 10 billion raises the total demand for goods and services by Rs. 30 billion.

a)If these economists ignore the possibility of crowding out, what would they estimate the MPC to be?

b)If these economists allow for crowding out, would their estimate of the MPC to be larger, or smaller than the original one. Explain!