Suppose the Price of a Big Mac in New York

question 14

Multiple Choice

Suppose the price of a Big Mac in New York is $3.00 and the price of a Big Mac in Paris is equivalent to $3.75 at the prevailing euro/dollar exchange rate. Using the concept of purchasing power parity, the euro is

• A) undervalued by 25 percent against the dollar.
• B) overvalued by 25 percent against the dollar.
• C) appreciating relative to the dollar.
• D) depreciating relative to the dollar.

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Definitions:

Net Income

The overall income a company retains following the deduction of all costs, such as taxes and operational expenses, from its gross revenue.

Assets

Resources owned by a company from which future economic benefits are expected to flow to the entity.

Balance Sheet

A financial statement that reports a company's assets, liabilities, and shareholders' equity at a specific point in time, providing a basis for computing rates of return and evaluating its capital structure.

Owner's Capital

The amount of equity a business owner has in the firm, representing the owner's personal investment plus any profits retained in the business.