If the dollar/pound exchange rate is $2/£,a Big Mac costs $5 in New York City and costs £2 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 Big Mac costs $5 in New York and £2 in London, which should be $4 at the exchange rate of $2/£. Thus, the pound is undervalued, and U.S. tourists will be better off in London.

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