When converted to U.S. dollars, the cost of a Big Mac in Oslo, Norway is $5.67, but the same burger costs $5.09 in the United States. What does this indicate?

Question

Quizplus · Accepted Answer

The difference in price between the Big Mac in Norway and in the United States indicates that purchasing power parity does not hold in this situation. According to purchasing power parity theory, exchange rates should adjust to equalize the prices of identical goods in different countries. However, in this case, the Big Mac is more expensive in Norway than in the U.S., which suggests that the Norwegian krone is overvalued relative to the U.S. dollar.

When Converted to U