Open Economy

A case study in Chapter 12 analyzed purchasing power parity for several countries using the price of Big Macs. Go on the Website of “The Economist” newspaper at http://www.economist.com/content/big-mac-index and find the data on the Big Mac Index for January 2020 and save it to your computer. Print the January 2020 article on the Big Mac Index and attach it to your assignment. For actual exchange rates, you may use the internet. Using the data table from “The Economist”, fill in the data on the local price of the Big Mac and actual exchange rate. Then compute the predicted exchange rate of the local currency per U.S. dollar. [Check the price of Big Mac in US$ because you have to compare the prices with that]Make sure to show your calculations in the predicted exchange rate column. [Please don’t print the entire data table from the website.]  Summarize the article in one paragraph, highlighting the main points. Looking at the exchange rates predicted by the Purchasing Power Parity, how well do you think does the theory of purchasing power parity explain exchange rates?

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