The Big Mac Index shows that the price of the Big Mac in China converted from the local currency, the yuan, to be $2.18, whereas its price in the United States is $3.73. This shows that:
A)the Big Mac is more popular in China than in the United States.
B)the Big Mac is less expensive in the United States than in China.
C)the Chinese yuan is overvalued when compared to US $.
D)the Chinese yuan is undervalued against the US $.
E)beef is less expensive in China than in the United States.

Question

Quizplus · Accepted Answer

The Big Mac Index compares the prices of the same good (Big Mac) in different countries, which allows for comparisons of currency values. If the price of the Big Mac is lower in China than in the United States when converted to US dollars, this indicates that the Chinese yuan is undervalued compared to the US dollar. Therefore, choice D is correct. Choices A, B, C, and E are incorrect because they are not supported by the information given in the question.

The Big Mac Index Shows That the Price of the Big