Pearson eText Economics -- Instant Access (Pearson+)
13th Edition
ISBN: 9780136879459
Author: Michael Parkin
Publisher: PEARSON+
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Question
Chapter 26, Problem 22APA
(a)
To determine
Identify why the yuan is undervalued or overvalued relative to
(b)
To determine
Identify why Swiss franc is undervalued or overvalued relative to purchasing power parity.
(c)
To determine
Identify the relevance of purchasing power parity test of Big Mac price in different countries.
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The NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued. In July 2019, the price of Mercedes Benz was $55 thousand in New York, 390 thousand yuan in Beijing, and 66.5 thousand Swiss francs in Geneva. The exchange rates were 6.79 yuan per U.S. dollar and 0.96 Swiss francs per U.S. dollar.
a. Does the purchasing power parity hold? Was yuan undervalued or overvalued relative USdollar? Explain your answer and show the calculation.
b. Do you think the price of a representativeness car, Mercedes Benz in different countriesprovides a valid test of purchasing power parity?
The NEWS magazine uses the price of a Mercedes Benz A-class to determine whether a currency is undervalued or overvalued. In July 2019, the price of Mercedes Benz was $55 thousand in New York, 390 thousand yuan in Beijing, and 66.5 thousand Swiss francs in Geneva. The exchanges rates were 6.79 yuan per U.S. dollar and 0.96 Swiss francs per U.S. dollar.
Do you think the price of a representativeness car, Mercedes Benz in different countries provides a valid test of purchasing power parity?
In April 2002, the price of a Big Mac in the UK was £1.99. Using data from The Economist's Big Mac Index for April 2002, the following table shows the local currency price of a Big Mac in several
countries and the actual exchange rate. At the time, a Big Mac in the United States would have cost you 2.49 pounds. The actual exchange rate between the pound and the euro was £0.69 per British
pound. The euro price of a Big Mac in the United States was, therefore, 2.49 British pounds x £0.69 per British pound = £1.71, which is less than you'd have paid in the UK. For the price you paid for a
Big Mac in the UK, you could have purchased a Big Mac in the United States and had some change left over for french fries.
Big Mac Index: April 2002
Country
Local Price
Actual Exchange Rate
Argentina
2.49 pesos
£0.23 per peso
Brazil
3.6 reais
£0.29 per real
United States
2.49 pounds
£0.69 per pound
Euro zone
2.67 euros
£0.62 per euro
Poland
5.9 zloty
£0.17 per zloty
Switzerland
6.3 francs
£0.42 per franc…
Chapter 26 Solutions
Pearson eText Economics -- Instant Access (Pearson+)
Ch. 26.1 - Prob. 1RQCh. 26.1 - Prob. 2RQCh. 26.1 - Prob. 3RQCh. 26.1 - Prob. 4RQCh. 26.1 - Prob. 5RQCh. 26.1 - Prob. 6RQCh. 26.1 - Prob. 7RQCh. 26.2 - Prob. 1RQCh. 26.2 - Prob. 2RQCh. 26.2 - Prob. 3RQ
Ch. 26.2 - Prob. 4RQCh. 26.2 - Prob. 5RQCh. 26.2 - Prob. 6RQCh. 26.3 - Prob. 1RQCh. 26.3 - Prob. 2RQCh. 26.3 - Prob. 3RQCh. 26.3 - Prob. 4RQCh. 26.4 - Prob. 1RQCh. 26.4 - Prob. 2RQCh. 26.4 - Prob. 3RQCh. 26 - Prob. 1SPACh. 26 - Prob. 2SPACh. 26 - Prob. 3SPACh. 26 - Prob. 4SPACh. 26 - Prob. 5SPACh. 26 - Prob. 6SPACh. 26 - Prob. 7SPACh. 26 - Prob. 8SPACh. 26 - Prob. 9SPACh. 26 - Prob. 10SPACh. 26 - Prob. 11APACh. 26 - Prob. 12APACh. 26 - Prob. 13APACh. 26 - Prob. 14APACh. 26 - Prob. 15APACh. 26 - Prob. 16APACh. 26 - Prob. 17APACh. 26 - Prob. 18APACh. 26 - Prob. 19APACh. 26 - Prob. 20APACh. 26 - Prob. 21APACh. 26 - Prob. 22APACh. 26 - Prob. 23APACh. 26 - Prob. 24APACh. 26 - Prob. 25APACh. 26 - Prob. 26APACh. 26 - Prob. 27APACh. 26 - Prob. 28APACh. 26 - Prob. 29APA
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