One Friday a few years ago, the Big Mac Index suggested that the yen was overvalued relative to the dollar by 70%.When currency markets opened on the following Monday, anyone using the Big Mac Index would conclude that yen was only 20% overvalued relative to the dollar.What is the most likely explanation for this?
A)Japan's Central Bank acted to prop up the yen.
B)Inflation in Japan suddenly spiked upward.
C)McDonald's headquarters stopped hedging.
D)McDonald's Japan reduced the yen price of a Big Mac.
E)McDonald's Japan increased the yen price of a Big Mac.

Question

Quizplus · Accepted Answer

The most likely explanation for the change in the Big Mac Index is that McDonald's Japan reduced the yen price of a Big Mac, making it relatively cheaper compared to the price of a Big Mac in the United States. This would lead to a decrease in the index value, suggesting that the yen was less overvalued compared to the U.S. dollar.

One Friday a Few Years Ago, the Big Mac Index