PP_Slides_Class_27_Wednesday_April_23

PP_Slides_Class_27_Wednesday_April_23 - Good Morning Class...

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Good Morning!! Class 27 Wednesday, April 23
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1. Where is the final exam? a. 103 Erickson b. 108 Wells c. 120 BCC d. 1281 Anthony
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1. What day is the final exam? a. Monday, April 28 b. Tuesday, April 29 c. Wednesday, April 30 d. Thursday, May 1 e. Friday, May 2
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1. What time is the final exam? a. 8:00 – 10:00 am b. 10:00 am – 12 noon c. 8:00 – 10:00 pm d. 3:00 – 5:00 pm
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The Hamburger Standard
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Big Mac Index The Economist January 14, 2006 January 9, 2006 data in US Big Mac costs $3.15 in China Big Mac costs $1.30
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use Figure 6 February 15, 2006 exchange rate 8.05 yuan / $ What does Big Mac cost in China in yuan? $1.30 × (8.05 yuan / $) = 10.47 yuan
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International Financial Theory says that in the long run the exchange rates should adjust so that the same good costs the same amount in any two countries. What would the exchange rate have to be for the Big Mac to cost the same in both the US and in China?
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Domestic price in $ × yuan / $ exchange rate = foreign price in yuan $3.15 × ? = 10.47 yuan ($3.15 / 10.47 yuan ) × ? = 1 .3 ? = 1 ? = 3.33 yuan / $
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at an exchange rate of 3.33 yuan / $ Big Mac in $: in US costs $3.15 in China costs 10.47 yuan / (3.33 yuan / $) = $3.15 in yuan: in US costs $3.15 × (3.33 yuan / $) = 10.47 yuan in China costs 10.47 yuan
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this implies that the exchange rate should fall from 8.05 yuan / $ to 3.33 yuan / $ OR the $ / yuan exchange rate should rise from $.1242 / yuan to $.30 / yuan so the yuan is undervalued relative to $ ($.1242 - $.30) / $.30 = -.59
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You may bring a graphing calculator or a cell phone to the final exam. a. True
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This note was uploaded on 04/28/2008 for the course ECON 202 taught by Professor Amsler during the Spring '08 term at Michigan State University.

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PP_Slides_Class_27_Wednesday_April_23 - Good Morning Class...

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