Read the News article 'Flipped' from the Economist below in the image.

*According to the Economist news article, why is the price of a 'Big Mac' a good indication of inflationary pressures in an economy? (4 marks)

*According to the Purchasing Power Parity theory of exchange rate determination, if prices are rising in an economy what should happen to the value of the currency, all else being equal? (4 marks)

*The article reports that Big Mac Prices have risen by 6% in the USA and by 12% in the UK over the past two years. According to the Purchasing Power Parity theory of exchange rate determination, should the value of the US dollar rise or fall vis a vis the UK pound. (4 marks)

*What are the reasons why the theory of purchasing power parity might not hold, thus explaining why a 'Big Mac' has a different price when measured in US dollars across countries. (4 marks)

please those questions answer in total more two hundars and fifty words

3:22 0 KB/s 43% 50 Finance & economics The Economist January 28th 2023 Currencies also reveal how inflation has changed the against the euro and pound has been more Flipped relative costliness of different countries. than required to offset this inflation gap. In America, for example, the median The combination of rising prices and a price of a Big Mac has risen by more than rising currency threatens to move Ameri- 6% to an average of $5.36 in the past two can prices out of whack with those else- years. (The price tends to be a bit higher in where in the world. Two years ago, for ex- big cities.) According to the theory of pur- ample, the Big Mac was 26% cheaper in Ja- HONG KONG chasing-power parity, when a country's pan than America. In principle, this sug- What inflation means for the Big Mac prices rise, its currency should fall, every- gests the yen was undervalued and should thing else equal. This stops the country's have risen against the dollar. In fact, the FOR MUCH of the past two years, econo- prices moving too farout of line with those opposite occurred. A Big Mac is now more I mists have argued fiercely about prices. elsewhere in the world than 40% cheaper in Japan As inflation in America and elsewhere has Yet the dollar has risen, not fallen, over There are exceptions where the theory exceeded central-bank targets, analysts the past two years against the currencies of of purchasing-power parity has held. Al- have dissected different components of most other big economies. A trade-weight- though Argentina's peso has fallen against the cost of living, including the prices of ed exchange-rate index published by the dollar, prices in the country have risen goods, services, energy and rents. America's Federal Reserve increased by even faster. A Big Mac now costs the equiv- But what about the Big Mac? The iconic more than 9% from December 2020 to De- alent of $5.31. That is high compared with Mcdonald's burger is an amalgam of rent, cember 2022. One reason for this is that in- the price two years ago and also compared electricity and labour, as well as beef, bread flation has also returned to lots of Ameri- with today's price in Brazil ($4.44). If the and cheese. Its price is therefore indicative ca's trading partners. Indeed, in many plac- two Latin American countries were to form of broader inflationary pressures. And be- es it is worse. Big Mac prices have risen by a currency union at today's exchange rate, cause the burger is basically the same 14% over the past two years in the euro area Argentina would find itself at a hefty com- wherever you are in the world, its price can and by 15% in Britain. But the dollar's rise petitive disadvantage. It would be almost 20% more expensive than its larger neigh- Christian finance bour, at least judging by burger prices. The Economist has been making com- God and mammon parisons of this kind since 1986. Convert- ing Big Mac prices into dollars always re- veals big differences in the cost of the same Serving two masters is tricky, it turns out burger in different countries. One measure of the "fair value" of a currency is the ex- S IT POSSIBLE to manage money suc- agrees with ESG advocates that non- change rate that would eliminate these cessfully and be a virtuous Christian? financial criteria should be used to con- gaps. But, of course, exchange rates are not For 2,000-odd years, followers of the sider investments-he just employs the only thing that can adjust. Prices can world's largest religion have debated the different criteria, such as whether firms also rise faster in one country than anoth- issue. Recently the debate has become support abortion by, say, funding travel er. In the long era of low inflation, this was fractious. The management of Christian for employees' procedures. He also en- not where the action was. Over the past two money, once farmed out to profession- gages in shareholder activism, pushing years, prices have been on the move in als, is now a moral minefield, the negotia banks to accept business from religious many countries. Unfortunately, these ation of which has effects in the here- conservatives. Properly mobilised, he bouts of inflation have done little to move and-now, not just the hereafter. says, the Christian investment industry burger prices closer together. Christian investors mostly fall into could be powerful. He places the stock three camps: those willing to forge a and bond holdings of America's Catho- partnership with environmental, social lics and Protestants at roughly $21trn The Big Mac index and governance (ESG) types; those stri- Straddling this chasm is the Roman Local currency valuation against the dollar, % dently opposed to them; and Roman Catholic church. In November Peter Selected countries Catholics. Dave Zellner, who manages Turkson, a cardinal, issued the Vatican's . Jan 2021 . Jan 2023 $24bn for Wespath, in effect the in- highest-level statement on where money Big Macprice*, $ vestment arm of America's Methodists, is should be directed. Its list of 24 things to -60 -30 U 10 60 in the first. He calls his job a search for avoid abetting where possible is broad: Switzerland 7.26 "the intersection between good business addictive products and pornography; United States 5.36 practice and church values". Wespath embryo research, which conservatives Argentina 5.31 lends to housing projects for the poor, hate; and genetically modified seeds, 5.27 but at market rates. It teams up with opposed by ecoleftists. In America, Euro areat worldly lobby groups for shareholder where Catholic bishops have issued their Australia 5.11 activism, including a coalition called own rules, some conservative scholars Saudi Arabia 5.06 Climate Action 100+ which encourages called the paper muddled. Britain 4.67 energy companies to quit carbon. Dylan Pahman of the Acton Institute, Robert Netzly, an American evangeli- a religious think-thank, argues churches Brazil 4.44 cal, is Mr Zellner's mirror image. His are delving too deeply into economics. Mexico 4.19 firm, Inspire Investing, manages $2bn. It Although it is right to cherish the planet, China 3.54 seeks to apply "Biblical principles" to all for instance, energy policies involve choices. Last year Mr Netzly renounced trade-offs and calculating them is not the Japan 3.15 the ESG label, saying it was "weaponised business of theology, he says. Given the India+ 253 by liberal activists to push forward rancour of today's debate, his is likely to *At market exchange rates (Jan 24th 2023) their..social-Marxist agenda". But he remain a voice in the wilderness. Weighted average of member countries +Maharaja Mac Sources: McDonald's; The Economist Reproduced with permission of copyright owner. 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