In February 2007, the price of a Big Mac in the United States was $3.22. Using d
ID: 1208798 • Letter: I
Question
In February 2007, the price of a Big Mac in the United States was $3.22. Using data from The Economist's Big Mac Index for February 2007, 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 British pounds. The actual exchange rate between the pound and the dollar was $1.96 per British pound. The dollar price of a Big Mac in the United Kingdom was, therefore, 1.99 British pounds x $1.96 per British pound = $3.90, 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 $3.22 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) = $3.22/1.99 British pounds = $1.62 per British pound In February 2007, the dollar price of a Big Mac in Brazil was_the dollar price of a Big Mac in the United States. What exchange rate would have equalized the dollar price of a Big Mac in the United States and Brazil? That is, what is the PPP exchange rate for Big Macs? $2.13 per real $0.47 per real $3.22 per real $0.50 per real If exchange rates had been adjusted to bring about Big Mac PPP between the dollar and the real, the value of the real would have_against the dollar, and the value of the dollar would have_against the real.Explanation / Answer
1. PPP exchange rate = 3.90/3.22
= 1.21
2,. less than
3.$0.50 per real
4. appreciated , Depreciated
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