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Question

The Economist regularly publishes the Big Mac index to examinethe validity of purchasing power parity. If purchasing power parityholds, a consumer should be able to take the same amount of moneyrequired to buy a Big Mac in the U.S. and buy a Big Mac in anyother country. What are the reasons purchasing power parity may nothold? If the U.S. dollar depreciates against the euro andpurchasing power parity holds, would a Big Mac in Europe becomemore or less expensive? Why? If purchasing power parity doesn’thold, does an American tourist in Europe pay more or less for a BigMac? Why?

Solution

xxx reason xxx purchase xxxxx xxxxxy xx the xxxxxxxx in xxxxxxxxx xxx xxxxxy of xxx product. xxx xxxxxxx xxx to xx paid xxxxxxxxxxx xxxx xxxxxxxx increases. xxxx US xxxxxxx xxxxxxxxxxx, xxxxxxxxxxx is xxxxxxxx. The xxxx xxxxx xxxx increase xx the xxxxxxxxxxxxx xxxxxy xxx to xxxxxxx in xxxxxx. xx xx is xxx controlled xxxxxx xxxxx xxxx affect xxxxxxxx in xxxxxx xxxxxxxxy. xxx would xxyxxxx for xxx xxx.

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