In April 2002, the price or a Dig Mac in the United States was $2.49. Using data
ID: 1195345 • Letter: I
Question
In April 2002, the price or a Dig Mac in the United States was $2.49. Using data from The Economist's Big Mac Index for April 2002, the following table shows the local currency price of a Big Mac In several countries and the actual exchange rate. At the time, a Big Mac in the United Kingdom would have cost you 1.99 3British pounds. The actual exchange rate between the pound and the dollar was $1.45 per British pound. The dollar price of a Big Mac in the United Kingdom was, therefore, 1.99 British pounds Times $1.45 per British pound = $2.89, which is more than you'd have paid In the United States. For the price you paid for a Big Mac In the United Kingdom, you could have purchased a Big Mac In the United States and had some change left over for french fries. Purchasing power parity (PPP) theory states that exchange rates should equalize the prices of goods In any two countries. For the dollar price of a Big Mac to be the same in both countries, a U.S. citizen would need to be able to convert $2.49 into exactly 1.99 British pounds. To find the exchange rate at which hamburger purchasing power is the same In both countries, divide the price in the United States by the price In the United Kingdom: PPP Exchange Rate (U.S. dollars per British pound) = $2.49/1.99 British pounds = $ 1.2 5 per British pound In April 2002, the dollar price of a Big Mac in Switzerland was Ua the dollar price of a Big Mac in the United States.Explanation / Answer
The dollar price of a Big Mac in Swizerland was (in Franc)= $2.49/6.33= $0.39 per franc