Question

A case study in the chapter analyzed purchasing power parity for several countries using the price of Big Macs. Here are data for a few more countries: a. For each country, compute the predicted exchange rate of the local currency per U.S. dollar. (Recall that the U.S. price of a Big Mac was \$4.93.) b. According to purchasing-power parity, what is the predicted exchange rate between the Hungarian forint and the Canadian dollar? What is the actual exchange rate? c. How well does the theory of purchasing-power parity explain exchange rates?

Name: Problem 8, Chapter 31: Principles of Economics
Uploaded: 2019-05-14T03:09:16-08:00
Duration: 5 min 7 s
Channel: Yi Chun Lin

   A case study in the chapter analyzed purchasing power parity for several countries using the price of
Big Macs. Here are data for a few more countries:
a. For each country, compute the predicted exchange rate of the local currency per U.S. dollar. (Recall
that the U.S. price of a Big Mac was \$4.93.)
b. According to purchasing-power parity, what is the predicted exchange rate between the Hungarian
forint and the Canadian dollar? What is the actual exchange rate?
c. How well does the theory of purchasing-power parity explain exchange rates?

Principles of Economics

Gregory Mankiw 8th Edition

Chapter 31, Problem 8

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Solved by Expert Yi Chun Lin

05/14/2019

Step 1

S. dollar. This can be done by dividing the local price of a Big Mac by the U.S. price of a Big Mac, which is \$4.93. For example, if the local price of a Big Mac in a certain country is \$5.84, the predicted exchange rate would be \$5.84 / \$4.93 = 1.18. Show more…

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A case study in the chapter analyzed purchasing power parity for several countries using the price of Big Macs. Here are data for a few more countries: a. For each country, compute the predicted exchange rate of the local currency per U.S. dollar. (Recall that the U.S. price of a Big Mac was \$4.93.) b. According to purchasing-power parity, what is the predicted exchange rate between the Hungarian forint and the Canadian dollar? What is the actual exchange rate? c. How well does the theory of purchasing-power parity explain exchange rates?