Principles of Economics, 7th Edition

Published by South-Western College
ISBN 10: 128516587X
ISBN 13: 978-1-28516-587-5

Chapter 31 - Part XI - Open-Economy Macroeconomics: Basic Concepts - Problems and Applications - Page 681: 9

Answer

a) Chile: 469.1 pesos/dollar Hungary: 189.93 forints/dollar Czech Republic: 16.018 korunas/dollar Brazil: 2.57 real/dollar Canada: 1.238 CAD/USD b) Predicted exchange rate: 153.42 forints/CAD Actual exchange rate: 217 forints/CAD c) The theory doesn't really help explain exchange rates. There are differences between exchange rates and purchasing power parity.

Work Step by Step

a) Chile: 2050 pesos per Big Mac 4.37 USD per Big Mac $2050/4.37 = 469.1$ pesos/dollar Hungary: 830 forints per Big Mac 4.37 USD per Big Mac $830/4.37 = 189.93$ forints/dollar Czech Republic: 70 korunas per Big Mac 4.37 USD per Big Mac $70/4.37 = 16.018$ korunas/dollar Brazil: 11.25 real per Big Mac 4.37 USD per Big Mac $11.25/4.37 = 2.57$ real/dollar Canada: 5.41 Canadian dollars per Big Mac 4.37 USD per Big Mac $5.41/4.37 = 1.238$ CAD/USD b) Predicted: 189.93 Hungarian forints per USD/1.238 Canadian dollar per USD = 153.42 forints/CAD Actual: 217 Hungarian forints per USD/1 Canadian dollar per US dollar = 217 forints/CAD
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