On January 31, 2019 the exchange rate between the US dollar and the euro was 1.14 USD/EUR. At the end of 2014, it was at 1.23 USD/EUR. Couple of years ago, A Big Mac cost 3.54 USD in the US. The price...


On January 31, 2019 the exchange rate between the US dollar and the euro was 1.14 USD/EUR.<br>At the end of 2014, it was at 1.23 USD/EUR.<br>Couple of years ago, A Big Mac cost 3.54 USD in the US. The price in the Euro Area was 3.42<br>EUR. Exchange rate was 1.28 USD/1 EUR.<br>c) If law of one price would be true how much should it cost in the Euro Area?<br>d) If Big Mac prices are perfect for determining PPP, is the Euro in comparison to the USD<br>overvalued or undervalued? For how much?<br>e) What is a definition of a nominal exchange rate in the value notation? Write an example.<br>

Extracted text: On January 31, 2019 the exchange rate between the US dollar and the euro was 1.14 USD/EUR. At the end of 2014, it was at 1.23 USD/EUR. Couple of years ago, A Big Mac cost 3.54 USD in the US. The price in the Euro Area was 3.42 EUR. Exchange rate was 1.28 USD/1 EUR. c) If law of one price would be true how much should it cost in the Euro Area? d) If Big Mac prices are perfect for determining PPP, is the Euro in comparison to the USD overvalued or undervalued? For how much? e) What is a definition of a nominal exchange rate in the value notation? Write an example.

Jun 11, 2022
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