Suppose That the Price of a Big Mac Is a Good

question 146

Essay

Suppose that the price of a Big Mac is a good approximation of the price level in the country. A Big Mac costs
£2 in London and $3 in New York.
a) If purchasing power parity holds, what is the exchange rate between the U.S. dollar and the British pound?
b) If the current exchange rate is $1.6 per pound, what is the dollar price of a Big Mac in London? What do you predict will happen to the exchange rate? Explain.
c) The exchange rate between the U.S. dollar and the Russian ruble is 30 rubles per dollar. If purchasing power parity holds, what is the price of a Big Mac in Moscow?

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Definitions:

Glycogen Synthesis

The process of converting glucose into glycogen, which is stored in the liver and muscle cells for energy.

Pancreatic Islets

Clusters of cells in the pancreas that produce hormones like insulin and glucagon, playing a key role in glucose metabolism.

Pancreatic Duct

A duct connecting the pancreas to the duodenum, through which pancreatic juices flow to aid in digestion.

Zona Reticularis

Inner layer of the adrenal cortex that secretes androgens and estrogens.