1. Currently, the average price of a Big Mac is RMB 22.50 in China and $5.20 in the U.S. The actual exchange rate is RMB 6.50/$. Please answer the following questions:

1) Where are hamburgers cheaper, in China or U.S.?

2) Calculate the PPP-implied exchange rate, based on the law of one price.

3) Based on the PPP, is the Chinese yuan overvalued or undervalued, and by how much?

Answer rating: 100% (QA)

1 To determine where hamburgers are cheaper we need to compare the prices of Big Macs in China and the US Converting the prices to a common currency w... View the full answer