If the current exchange rate is 113 Japanese yen per U.S. dollar, the price of a Big Mac hamburger in the United States is $3.41, and the price of a Big Mac hamburger in Japan is 280 yen, then other things equal, the Big Mac hamburger in Japan is:

Question

Quizplus · Accepted Answer

To compare the prices of the Big Mac hamburger between the US and Japan, we need to use the concept of purchasing power parity (PPP). PPP implies that the exchange rate between two countries should equalize the prices of a basket of goods and services, including the Big Mac.

In this case, the price of a Big Mac in Japan is 280 yen, which translates to $2.48 using the exchange rate of 113 yen/dollar. However, the actual price of a Big Mac in the US is $3.41. Therefore, according to PPP, the Big Mac in Japan is underpriced.

If the Current Exchange Rate Is 113 Japanese Yen Per