In the US, the price of a Big Mac is $4.5. In China, the price...
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In the US, the price of a Big Mac is $4.5. In China, the price of a Big Mac is Y15. i. What is the exchange rate of Chinese Yuan under purchasing power parity? ii. What is the dollar price of Big Mac in China, if the actual exchange rate is $0.15/ Y? iii. Is the Chinese Yuan overvalued or undervalued? By how much? Formula: under(overvaluation = (actual rate-PPP rate)/ PPP rate Iv. Does the absolute form of Purchasing Power Parity holds? Why? In the US, the price of a Big Mac is $4.5. In China, the price of a Big Mac is Y15. i. What is the exchange rate of Chinese Yuan under purchasing power parity? ii. What is the dollar price of Big Mac in China, if the actual exchange rate is $0.15/ Y? iii. Is the Chinese Yuan overvalued or undervalued? By how much? Formula: under(overvaluation = (actual rate-PPP rate)/ PPP rate Iv. Does the absolute form of Purchasing Power Parity holds? Why
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