A case study in the chapter analyzed purchasing-power parity for several countries using the price of Big Macs. Here are data for a few more countries:
For each country, select the predicted exchange rate of the local currency per U.S. dollar. (Hint: Recall that the U.S. price of a Big Mac was $5.58.)
Country Price of a Big Mac Predicted Exchange Rate Actual Exchange Rate
Costa Rica 2,290 colones 607 colones/$
Pakistan 460 rupees 139 rupees/$
Thailand 119 baht 32 baht/$
China 20.9 yuan 6.85 yuan/$
New Zealand 6.20 NZ$ 1.48 NZ$/$
According to purchasing-power parity, the predicted exchange rate between the Pakistani rupee and the New Zealand dollar is _______ rupees per New Zealand dollar. However, the actual exchange rate is _______ rupees per New Zealand dollar.
(1) Predicted exchange rate:
Costa Rica: 2,290 / 5.58 = 410.39 colones/$
Pakistan: 460 / 5.58 = 82.44 rupees/$
Thailand: 119 / 5.58 = 21.33 baht/$
China: 20.9 / 5.58 = 3.75 yuan/$
New Zealand: 6.2 / 5.58 = 1.11 NZ$/$
(2) Predicted exchange rate is 74.27 rupees per NZ dollars (= 82.44 / 1.11). Actual exchange rate is 93.92 rupees per NZ dollars (= 139 / 1.48).
A case study in the chapter analyzed purchasing-power parity for several countries using the price of...