Examlex

Solved

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

question 210

Essay

The "Big Mac Theory of Exchange Rates" tests the accuracy of purchasing power parity theory.In July 2015,The Economist reported that the average price of a Big Mac in the United States was $4.79.In Switzerland,the average price of a Big Mac at that time was 6.50 Swiss francs.If the exchange rate between the dollar and the Swiss franc was 0.93 Swiss francs per dollar,how would purchasing power parity predict the exchange rate will change in the long run? Support your answer graphically.


Definitions:

Furtherance

The act of promoting or advancing a cause, interest, or plan.

Governing Professionals

Individuals or bodies responsible for making and enforcing rules and standards within specific professions to ensure accountability and integrity.

Professions

Occupations requiring specialized knowledge and often long and intensive academic preparation.

Role Trust

The confidence in and reliance on individuals or groups to perform their functions or roles effectively and responsibly, particularly in professional settings.

Related Questions