According to Big Mac Index 2012 provided by the Economists, A Big Mac costs $4.33 in the U.S. and 15.65 RMB in China.

a. What should be the exchange rate S($/RMB) based on PPP?

b. If the inflation rate in China will be 3% while the inflation rate in the U.S. will be 2% over the next year, what should be the future exchange rate S360($/RMB) based on PPP?

c. If S($/RMB) indeed increases by 2%, what does it imply to the competitiveness of the U.S. exporters? (3 points) d. The market exchange rate of S(RMB/$) is 6.29RMB/$ on October 3rd. Compared to the PPP-implied exchange rate, is RMB over-value or under value and by how much?

Answer rating: 100% (QA)

Purchasing Power Parity PPP Analysis a PPP Exchange Rate Based on the Big Mac Index the PPP exchange ... View the full answer