When the Big Mac in the Euro costs more than it does in converted US dollars we can say the currency _____.
A) should not be measured in this way
B) is difficult to value, as currencies are volatile
C) is undervalued
D) is overvalued

Question

Quizplus · Accepted Answer

If the Big Mac in the Euro costs more than it does in converted US dollars, it implies that the euro is overvalued. This is because purchasing power parity theory states that in the absence of trade barriers and transaction costs, the exchange rates should adjust so that a basket of goods, including the Big Mac, costs the same across different countries when measured in the same currency.

When the Big Mac in the Euro Costs More Than