Suppose the average price of a Big Mac in the United States is $3.50 while in Japan the average price is 400 yen. If the market exchange rate is that 1 dollar is exchanged for 100 yen, the purchasing power parity model of exchange rate determination suggests that:a. The yen is overvalued.b. The yen is undervalued.c. The price of a Big Mac in Japan will rise.d. The dollar will depreciate against the yen.

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Asked Nov 23, 2019
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Suppose the average price of a Big Mac in the United States is $3.50 while in Japan the average price is 400 yen. If the market exchange rate is that 1 dollar is exchanged for 100 yen, the purchasing power parity model of exchange rate determination suggests that:

a. The yen is overvalued.
b. The yen is undervalued.
c. The price of a Big Mac in Japan will rise.
d. The dollar will depreciate against the yen.
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Expert Answer

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The average price of the Big Mac in the US is $...

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Average price in US Average price Yen 400 3.5 =114.285

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