1. Each year, The Economist publishes data on the price of the Big Mac in differ
ID: 1167105 • Letter: 1
Question
1. Each year, The Economist publishes data on the price of the Big Mac in different countries and exchange rates. The accompanying table shows some data from 2007 and 2015. Use this information to answer the following questions 2015 2007 Price of Price of Price of Price of Big Mac Big MacBig MacBig Mac (in local (in U.S. (in local (in U.S. currency) dollars) currency) dollars) Country Argentina Canada Euro area peso8.25 $265 pes021.0 $2.57 C$3.63 $3.08 C$5.25 $5.64 3.68 $4.95 2.94 $3.82 $2.31 United States $3.22$3.22 Y370 $4.80 Japan Y280 $3.64 $4.80 la. Using the increase in the local currency price of the Big Mac in each country to measure the percent change in the overall price level from 2007 to 2015, which nation experienced the most inflation? Did any of the nations experience deflation? lb. Using the increase in the U.S. Dollar price of the Big Mac in each country to measure the percent change in the overall price level from 2007 to 2015, which nation experienced the most inflation? Did any of the nations experience deflation?Explanation / Answer
(1a) % Change in price = [(Local currency price in 2015 / Local currency price in 2007) - 1] x 100
Argentina: [(21/8.25) - 1] x 100 = (2.5455 - 1) x 100 = 1.5455 x 100 = 154.55%
Canada: [(5.25/3.63) - 1] x 100 = (1.4463 - 1) x 100 = 0.4463 x 100 = 44.63%
Euro Area: [(3.68/2.94) - 1] x 100 = (1.2517 - 1) x 100 = 0.2517 x 100 = 25.17%
Japan: [(370/280) - 1] x 100 = (1.3214 - 1) x 100 = 0.3214 x 100 = 32.14%
United States: [(4.8/3.22) - 1] x 100 = (1.4907 - 1) x 100 = 0.4907 x 100 = 49.07%
Argentina showed highest inflation since it experienced maximum % change in price level. Since none of the countries experienced a negative % change in price level, none experienced deflation.
(1b) % Change in price = [(US Dollar price in 2015 / US Dollar price in 2007) - 1] x 100
Argentina: [(2.57/2.65) - 1] x 100 = (0.9698 - 1) x 100 = -0.0302 x 100 = -3.02%
Canada: [(5.64/3.08) - 1] x 100 = (1.8312 - 1) x 100 = 0.8312 x 100 = 83.12%
Euro Area: [(4.95/3.82) - 1] x 100 = (1.2958 - 1) x 100 = 0.2958 x 100 = 29.58%
Japan: [(3.64/2.81) - 1] x 100 = (1.2954 - 1) x 100 = 0.2954 x 100 = 29.54%
United States: [(4.8/3.22) - 1] x 100 = (1.4907 - 1) x 100 = 0.4907 x 100 = 49.07%
Canada showed highest inflation since it experienced maximum % change in price level. Since Argentina experienced a negative % change in price level, Argentina experienced deflation.
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