Question
The Economists Big Mac Index is based on the theory of purchasing-power parity, which says that exchange rates should eventually adjust to make the price
The Economists Big Mac Index is based on the theory of purchasing-power parity, which says that exchange rates should eventually adjust to make the price of a basket of goods the same in each country.
On average, the cost of a Big Mac in the U.S. is $5.28 (as of Jan 2018) If purchasing power parity holds, how much should the Big Mac cost in China if the exchange rate is $1 = 6.84?
The actual average price of a Big Mac in China is approximately 21.3 RMB. How do you explain the difference between the price implied by PPP and the actual price?
Again, if PPP holds, how much should a Big Mac cost in PuertoRico? How much does it cost?
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