Portugal d) We cannot know 11) A Big Mac costs 10$ in the US, while the same Big Mac costs 10€ in France

Economics Dec 06, 2020

Portugal d) We cannot know 11) A Big Mac costs 10$ in the US, while the same Big Mac costs 10€ in France. If the exchange rate is 1€ = 1,1$, then the Euro is: a) Undervalued b) Overvalued c) At its equilibrium level d) None of the above fotoy frPn is 112 in 2015, the base year being

Expert Solution

The implied purchasing power of 1 euro = price of Big Mac in dollars / Price of Big Mac in euro = 10/10 = $1

The actual value of 1 Euro = $1.1

Thus, the actual value of Euro is higher than the implied value from the Big Mac index and thus the Euro is overvalued.

Thus, the answer is (b)

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