MACROECONOMICS Question (1 Viewer)

[pikachu123]

(ii) The Economist magazine uses prices of McDonalds’ Big Mac hamburger to calculate the PPP values for currencies. The following data are taken the July 2012 Big Max Index.
Big Mac Price in Local Currency
USA US$ 4.33
Australia $A 4.56
New Zealand $NZ 5.10

(a) Calculate the implied PPP values for the Australian dollar against the US dollar and for the Australian dollar against the New Zealand dollar.

(b) Using the daily exchange rate data from the RBA website at
http://www.rba.gov.au/statistics/tables/index.html#exchange_rates
what are the values of the $A/$US and $A/$NZ exchange rates for the 31 July 2012?

(c) Compared to its PPP value, is the Australian dollar overvalued or undervalued in terms of the US dollar? Explain.

(d) Compared to its PPP value, is the Australian dollar overvalued or undervalued in terms of the NZ dollar? Explain.

just wondering for these questions, what does implied PPP value mean? does that mean the exchange rate? also, by convention, what does $A/$US refer to? is it how many usd one aud can buy?
finally, is it just me but are both c and d overvalued? that would be quite unlikely for a question like this but meh.