If the dollar/pound exchange rate is $2/£,a Big Mac costs $5 in New York City and costs £4 in London,the pound is ________,and U.S.tourists will be ________.
A)overvalued; better off in London
B)overvalued; better off in New York
C)undervalued; better off in London
D)undervalued; better off in New York

Question

Quizplus · Accepted Answer

The pound is overvalued because a Big Mac costs more in London (£4 which is equivalent to $8 at a $2/£ rate) than in New York ($5). Therefore, U.S. tourists will find better value for their money in New York rather than London.

If the Dollar/pound Exchange Rate Is $2/£,a Big Mac Costs