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Suppose that a Big Mac costs $5.00 in New York and SF30 in Geneva. Suppose further that the price of 1SF on that day is $0.20. find out the purchasing power parity exchange rate between the Swiss franc and the dollar. Based on your calculation, is the SF overvalued or undervalued? describe. Suppose now that a Big Mac costs 1.25 pounds in London while the spot rate exchange rate is $2.50. Is the pound overvalued or undervalued? describe. Is the Big Mac a good basis for PPP calculations? Why or why not?

Microeconomics, Economics

  • Category:- Microeconomics
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