The Eurozone Norway United Kingdom Poland China Foreign Currency 7. Euro Kroner Pound Zloty Yuan Local Price (Foreign currency) 3.72 46.80 2.89 9.60 17.60 Big Mac Index: January 2016 Actual Exchange Rate (Dollars per unit of foreign currency) 1.10 0.12 1.63 0.36 0.16 Source: "Currency Comparison, To Go, The Economist, last modified January 7, 2016, accessed July 8, 2016, http://www.economist.com/blogs/graphicdetail/2016/01/daily-chart- Dollar Price (Dollars) The law of one price 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 $4.93 into exactly GBP 2.89. 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: $4.93 GBP 2.89 = $1.71 per British pound Law of One Price Exchange Rate (U.S. Dollars per British Pound) = 4.71 3.46 2.82 ☐ Exporting Big Macs from the Eurozone to the United States ☐ Exporting Big Macs from Norway to China Exporting Big Macs from Poland to China The exchange rate that would have equalized the dollar price of a Big Mac in the United States and the Eurozone (that is, the law of one price exchange rate for Big Macs) is . For this change to happen, the euro would have to against the dollar. If Big Macs were a durable good that could be transported between countries at no cost, which of the following would present arbitrage opportunities? Check all that apply.
The Eurozone Norway United Kingdom Poland China Foreign Currency 7. Euro Kroner Pound Zloty Yuan Local Price (Foreign currency) 3.72 46.80 2.89 9.60 17.60 Big Mac Index: January 2016 Actual Exchange Rate (Dollars per unit of foreign currency) 1.10 0.12 1.63 0.36 0.16 Source: "Currency Comparison, To Go, The Economist, last modified January 7, 2016, accessed July 8, 2016, http://www.economist.com/blogs/graphicdetail/2016/01/daily-chart- Dollar Price (Dollars) The law of one price 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 $4.93 into exactly GBP 2.89. 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: $4.93 GBP 2.89 = $1.71 per British pound Law of One Price Exchange Rate (U.S. Dollars per British Pound) = 4.71 3.46 2.82 ☐ Exporting Big Macs from the Eurozone to the United States ☐ Exporting Big Macs from Norway to China Exporting Big Macs from Poland to China The exchange rate that would have equalized the dollar price of a Big Mac in the United States and the Eurozone (that is, the law of one price exchange rate for Big Macs) is . For this change to happen, the euro would have to against the dollar. If Big Macs were a durable good that could be transported between countries at no cost, which of the following would present arbitrage opportunities? 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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