1. If a Big Mac costs $2 in the United States and 300 yen in Japan,...
1. If a Big Mac costs $2 in the United States and 300 yen in Japan, what is the estimated exchange rate of yen/ $ as hypothesized by the Big Mac index? (Answer: 150 yen /$)
Homework Answers
The Big Mac Index is nothing but a way of calculating Purchasing Power Parity between 2 currencies.
It also helps in determining to what an extent exchange rates are accurate determing cost of same goods in different countries.
Here, we are given price of Big Mac in USA and Japan.
EXchange rate between yen and $ = price of Big Mac in Japan/ price of Big Mac in USA
EXchange rate between yen and $ = 300/2 = 150 yen per $
Answer : 150 yen per dollar [Thumbs up please]
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