In the context of The Economist's "Big Mac Index," assume that the average price of a Big Mac in South Korea is $3.98 at the prevailing won/dollar exchange rate.The average price of a Big Mac in the United States is $4.93.This suggests that the Korean won is overvalued against the U.S.dollar.

Question

Quizplus · Accepted Answer

The conclusion drawn in the statement is incorrect. In fact, the opposite conclusion should be drawn - that the Korean won is undervalued against the U.S. dollar. The reason for this is that the price of a Big Mac in South Korea ($3.98) is lower than the price of a Big Mac in the United States ($4.93), despite the prevailing exchange rate. According to the Big Mac Index, this means that the Korean won is undervalued relative to the U.S. dollar.

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