In the context of The Economist's "Big Mac Index," assume that the average price of a Big Mac in South Korea is $2.98 at the prevailing won/dollar exchange rate. The average price of a Big Mac in the United States is $3.58. This suggests that the Korean won is overvalued against the U.S. dollar.

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To calculate the "Big Mac Index," the news magazine The Economist converts the price of a Big Mac in a country into dollars at current exchange rates and divides that by the average price of a Big Mac in America. According to the PPP theorem, the prices should be the same. If they are not, it implies that the currency is either overvalued against the dollar or undervalued. Dividing the price in South Korea by the average price of a Big Mac in the United States gives 0.83, which suggests that the won is undervalued by 17 percent against the U.S. dollar.

In the Context of the Economist's "Big Mac Index," Assume