Consider the following table. A Big Mac in the US cost USD5.66 in January 2021. Given the cost of Big Mac and corresponding exchange rates of the countries below, compute for the implied PPP exchange rate, and indicate whether the country's domestic currency is overvalued or undervalued vis-à-vis the USD. Country Norway South Korea Switzerland Taiwan Vietnam Local cost of Big Mac 52 Nkr 4,500 won 6.50 SFr 72 NT$ 66,000 dong Exchange rate (local cur- rency/USD) 8.54 1,097.35 0.89 27.98 23,064 PPP exchange rate (local cur- rency/USD) Overvalued or undervalued? Overvalued or undervalued by how much (%)?

Consider the following table. A Big Mac in the US cost USD5.66 in January 2021. Given the cost of Big Mac and corresponding exchange rates of the countries below, compute for the implied PPP exchange rate, and indicate whether the country's domestic currency is overvalued or undervalued vis-à-vis the USD. Country Norway South Korea Switzerland Taiwan Vietnam Local cost of Big Mac 52 Nkr 4,500 won 6.50 SFr 72 NT$ 66,000 dong Exchange rate (local cur- rency/USD) 8.54 1,097.35 0.89 27.98 23,064 PPP exchange rate (local cur- rency/USD) Overvalued or undervalued? Overvalued or undervalued by how much (%)?

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter29: Exchange Rates And International Capital Flows

Section: Chapter Questions

Problem 25CTQ: If a countrys currency is expected to appreciate in value, what would you think will be the impact...

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