Suppose that a Big Mac costs 6.5 Swiss Francs (CHF) in Switzerland 14.99 Turkish...

 

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Suppose that a Big Mac costs • 6.5 Swiss Francs (CHF) in Switzerland • 14.99 Turkish Lira (TRY) in Turkey . 5.66 US Dollars (USD) in the United States The market exchange rate between the U.S. Dollar and the Swiss Franc is 1.1 US Dollars per Swiss Franc, and between the U.S. Dollar and the Lira is 8.1 Lira per US Dollar. Assuming that Big Macs are representative of all goods in both countries (!). answer the following: 1. Expressed in dollars, will Turkish GDP per capita look higher when converted at the nominal exchange rate or at the PPP exchange rate? Explain your answer. 2. Does purchasing power parity hold between (a) the Swiss Franc and the United States Dollar? If not, which currency is overvalued and by how much? (b) the Turkish Lira and the United States Dollar? If not, which currency is overvalued and by how much? 3. Assuming that a Swiss citizen earning an income in Swiss Francs could travel to Turkey, would it be expensive or cheap to go there? Briefly explain. Suppose that a Big Mac costs • 6.5 Swiss Francs (CHF) in Switzerland • 14.99 Turkish Lira (TRY) in Turkey . 5.66 US Dollars (USD) in the United States The market exchange rate between the U.S. Dollar and the Swiss Franc is 1.1 US Dollars per Swiss Franc, and between the U.S. Dollar and the Lira is 8.1 Lira per US Dollar. Assuming that Big Macs are representative of all goods in both countries (!). answer the following: 1. Expressed in dollars, will Turkish GDP per capita look higher when converted at the nominal exchange rate or at the PPP exchange rate? Explain your answer. 2. Does purchasing power parity hold between (a) the Swiss Franc and the United States Dollar? If not, which currency is overvalued and by how much? (b) the Turkish Lira and the United States Dollar? If not, which currency is overvalued and by how much? 3. Assuming that a Swiss citizen earning an income in Swiss Francs could travel to Turkey, would it be expensive or cheap to go there? Briefly explain.

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To compare Turkish GDP per capita using nominal exchange rate and purchasing power parity PPP exchange rate we need to consider the relative price levels between Turkey and the United States PPP takes ... View the full answer