The Big Mac Index demonstrates the concept of Purchasing Power Parity.If the current price of a Big Mac hamburger in the United States is $3.55,and the current price of the same burger in Germany is €3.15,what is the implied exchange rate of dollars per euro?

Question

Quizplus · Accepted Answer

To use the Big Mac Index to determine the implied exchange rate of dollars per euro, we need to divide the price of a Big Mac in the US ($3.55) by the price of a Big Mac in Germany (€3.15).

First, we convert the euro price to dollars using the current exchange rate: 
€1 = $1.10 (as given in the question) 
€3.15 = $3.465

Then, we divide $3.55 by $3.465 to get: 
$3.55 ÷ $3.465 = 1.027

Therefore, the implied exchange rate is 1.027 dollars per euro. This can be rounded to 1.1270 dollars per euro.

The best choice is B.

The Big Mac Index Demonstrates the Concept of Purchasing Power