Euro area Norway United Kingdom Poland China Actual Exchange Rate (Foreign currency) (Dollars per unit of foreign currency) 1.12 0.12 1.25 0.26 0.14 4.08 42.00 3.29 10.80 21.00 PPP Exchange Rate (U.S. Dollars per British pound) Dollar Price (Dollars) 8374 GBP 1.39 $1.74 per pound 4,11 2.81 2.94 Source: "The Big Mac Index, Our Interactive Currency Comparison Tool," The Economist, last modified January 10, 2019, accessed September 27, 2019, https://www.economist.com/news/2019/07/10/the-big-mac-index 4.57 Purchasing-power party (PPP) theory states that exchange rates would need to 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 $5.74 into exactly GBP 3.29. 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: 5.04 Exporting Big Macs from the Euro area to the United Sta Exporting Big Macs from the United Kingdom to Poland O Exporting Big Macs from Norway to China The exchange rate that would have equalized the dollar price of a Big Mac in the United States and the Euro area (that is, the PPP exchange rate for Big Macs) is This change would mean that the euro had against the dollar. If Big Macs were a durable good that could be costlessly transported between countries, which of the following would present an arbitrage opportunity? Check all that apply.
Euro area Norway United Kingdom Poland China Actual Exchange Rate (Foreign currency) (Dollars per unit of foreign currency) 1.12 0.12 1.25 0.26 0.14 4.08 42.00 3.29 10.80 21.00 PPP Exchange Rate (U.S. Dollars per British pound) Dollar Price (Dollars) 8374 GBP 1.39 $1.74 per pound 4,11 2.81 2.94 Source: "The Big Mac Index, Our Interactive Currency Comparison Tool," The Economist, last modified January 10, 2019, accessed September 27, 2019, https://www.economist.com/news/2019/07/10/the-big-mac-index 4.57 Purchasing-power party (PPP) theory states that exchange rates would need to 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 $5.74 into exactly GBP 3.29. 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: 5.04 Exporting Big Macs from the Euro area to the United Sta Exporting Big Macs from the United Kingdom to Poland O Exporting Big Macs from Norway to China The exchange rate that would have equalized the dollar price of a Big Mac in the United States and the Euro area (that is, the PPP exchange rate for Big Macs) is This change would mean that the euro had against the dollar. If Big Macs were a durable good that could be costlessly transported between countries, which of the following would present an arbitrage opportunity? Check all that apply.
Brief Principles of Macroeconomics (MindTap Course List)
8th Edition
ISBN:9781337091985
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter13: Open-economy Macroeconomics: Basic Concepts
Section: Chapter Questions
Problem 8PA
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