A Big Mac costs $4.79 in the United States and 9.6 zlotys in Poland.If the exchange rate is 3 zlotys per dollar,purchasing power parity predicts that

Question

Quizplus · Accepted Answer

According to the purchasing power parity theory, the exchange rate should reflect the price levels of the two countries, and the same good should have the same price in both countries when converted to a common currency. However, in this case, the price of a Big Mac in Poland (9.6 zlotys) is equivalent to $3.20 (9.6/3) instead of $4.79, which suggests that the dollar is overvalued. Therefore, choice B is the best answer.

A Big Mac Costs $4