Question #221541

- A McDonald’s Big Mac costs 2.44 yuan in China, but costs $4.20 in the United States. Assuming that purchasing-power parity (PPP) holds, how many Chinese yuan are required to purchase 1 U.S. dollar?

Expert's answer

As per the information given in the question we have :

Cost of McDonald’s Big Mac in China = 2.44 Yuan

Cost of McDonald’s Big Mac in US Dollars = $ 4.20

Since Purchasing power parity holds good, the spot exchange rate between the Yuan and the US Dollar is

"= \\frac{Cost\\; of \\;McDonald\u2019s \\;Big\\; Mac\\; in \\;China }{ Cost \\;of \\;McDonald\u2019s \\;Big\\; Mac \\;in \\;US \\;Dollars} \\\\\n\n= \\frac{2.44 \\;Yuan }{ 4.20 \\;Dollar} \\\\\n\n= 0.5810 \\;Yuan"

Thus

"\\frac{Yuan }{ Dollar}= 0.5810 \\;Yuan"

= 0.58 Yuan ( If rounded off to two decimal places )

Thus when the purchasing power parity holds good, 0.5810 Chinese yuan are required to purchase 1 U.S. dollar.

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