QUESTION TWO (a) What is the Big Mac Index? Why can it be a misleading guide to purchasing power parity (PPP)? (6) Consider a world that only comprises 2 goods (Good 1. Good 2) and 2 countries (UK and Japan). Assume that the population of all countries split their consumption equally between the two goods. The prices of goods at time t are listed below: Good 1 Good 2 UK (GBP) 160 224 Japan (Yen) 208 304 Let the spot exchange rate at time i be equal to 0.75 GBP per Yen. Does absolute purchasing power parity (APPP) hold between the UK and Japan? (C) You are now given the following time t+1 information: UK national price: 240 Japan national price: 250 Using the information in (b), calculate the time t+1 UK-Japan exchange rate implied by relative PPP