The "Big Mac Theory of Exchange Rates" Tests the Accuracy

question 45

Multiple Choice

The "Big Mac Theory of Exchange Rates" tests the accuracy of the purchasing power parity theory.In July 2011, the Economist reported that the average price of a Big Mac in the U.S.was $4.07.In Mexico, the average price of a Big Mac at that time was 32 pesos.What is the "implied exchange rate" between the peso and the dollar?

• A)1.30 pesos per dollar
• B)4.17 pesos per dollar
• C)7.86 pesos per dollar
• D)12.72 pesos per dollar
• E)14.36 pesos per dollar

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