A Big Mac in Japan Costs 320 Yen While It

question 7

Multiple Choice

A Big Mac in Japan costs 320 yen while it costs $3.60 in the U.S.. The nominal exchange rate is 80 yen per dollar. Which of the following would both make the real exchange rate move towards purchasing-power parity?

• A)the price of Big Macs in the U.S. falls, the nominal exchange rate falls
• B)the price of Big Macs in the U.S. falls, the nominal exchange rate rises
• C)the price of Big Macs in the U.S. rises, the nominal exchange rate falls
• D)the price of Big Macs in the U.S. rises, the nominal exchange rate rises

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Definitions:

Solvents

Substances that dissolve a solute, resulting in a solution; usually liquid but can be gas or solid.

Polarity

A characteristic of molecules with uneven distribution of charges, resulting in regions of partial positive and negative charges.

Polar

A molecule with uneven distribution of charges, leading to positive and negative ends, affecting solubility and melting/boiling points.

Benzene

A chemical compound with the formula C6H6, known as an aromatic hydrocarbon and used as a starting material in the production of numerous chemicals.