Question 5

8. Purchasing-power parity Using data from The Economist's Big Mac Index for 2019, the following table shows the local currency price of a Big Mac in several countries as well as the actual exchange rate between each country and the United States. At the time of the data collection, a Big Mac would have cost you $5.74 in the United States and GBP 3.29 in the United Kingdom. The actual exchange rate between the British pound and the 1U.5. dollar was $1.25 per pound. The dollar price of a Big Mac purchased in the United Kingdom was, therefore, computed as follows: Dollar price of a Big Mac in the United Kingdom GBP 3.20 x == = $411 For the price you paid for a Big Mac in the United States, you could have purchased a Big Mac in the United Kingdom and had some change left over for fries! Complete the final column of the table by computing the doilar price of 8 Big Mac for the countries where this amount is not given. Note: Round your answers to the nearest cent. Big Mac Index: January 2019 Local Price Actual Exchange Rate Dollar Price (Foreign currency) (Dollars per unit of foreign currency) (Dollars) Euro area 4.08 1.12 : Norway 42.00 0.12 1] United Kingdom 3.29 1.25 4,11 Poland 10.80 0.26 2.81 China 21.00 0.14 2.04 Source: "The Big Mac Index, Our Interactive Currency Comparison Toal,\" The Economist, last medified January 10, 2019, accessed September 27, 2019, hittps://www.econemist.comews/2019/07/10/the-big-mac-index. 5. Capital flight The graphs below depict the loanable funds market and the relationship between real interest rates and the level of net capital outflow (NCO) calculated in terms of the Mexican peso. The Market for Loanable Funds in Mexico Mexican Net Capital Qutflow B - q T Supply AT 2 g S 5 + S B8 @ L T w 5 + w 5