A Big Mac costs $4.00 in the United States and 9.00 reals in Brazil.If the exchange rate is 2 reals per dollar,purchasing power parity predicts that

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Purchasing Power Parity (PPP) suggests that in the long run, exchange rates should adjust so that an identical good in two different countries has the same price when expressed in the same currency. In this case, a Big Mac costs $4.00 in the US and 9.00 reals in Brazil. With the exchange rate at 2 reals per dollar, the Big Mac in Brazil costs the equivalent of $4.50 ($9.00 / 2 reals per dollar). Since the Big Mac is more expensive in Brazil, PPP predicts that the demand for dollars will increase to buy the cheaper Big Macs in the US, leading to an appreciation of the dollar in the long run.

A Big Mac Costs $4