Big Mac Index for Imaginary Countries, May 1, 2026

Country

Big Mac

Cost in LCU*

Actual ER =

LCU*/peso

Implied ER
Neverland

16.25 pesos

1.00 _____
Wonderland

7.86 baht

0.52
Oz

641 rupees

42.11
Pandora

35.08 soles

2.00

Source: Dr. Jackson's imagination

*Local Currency Units

Based on the table above, the sol may be:

Question

Big Mac Index for Imaginary Countries, May 1, 2026

Country

Big Mac

Cost in LCU*

Actual ER =

LCU*/peso

Implied ER
Neverland

16.25 pesos

1.00	_____
Wonderland

7.86 baht

0.52	
Oz

641 rupees

42.11	
Pandora

35.08 soles

2.00

Source: Dr. Jackson's imagination

*Local Currency Units

Based on the table above, the sol may be:

BlackTom AI · Accepted Answer

Purchasing Power Parity (PPP) implies an implied exchange rate = (local Big Mac price) / (base-country Big Mac price). Use Neverland (16.25 pesos per Big Mac) as the base.

1) Relevant concepts
- PPP and the Big Mac Index: identical goods should cost the same across countries once currencies are converted. 
- Implied exchange rate (in local currency units per peso) = local Big Mac price ÷ Neverland Big Mac price.
- If actual LCU/peso < implied LCU/peso, the local currency is stronger (overvalued) relative to the peso; if actual > implied, it is weaker (undervalued).

2) Step-by-step reasoning and calculations
- Pandora Big Mac price = 35.08 soles; Neverland price = 16.25 pesos.
- Implied ER (soles per peso) = 35.08 ÷ 16.25.
  - 35.08 ÷ 16.25 = 2.15876923077 ≈ 2.159 soles/peso.
- Actual ER from table = 2.00 soles/peso.

3) Intermediate steps shown
- Division: 16.25 × 2 = 32.50; remainder 35.08 − 32.50 = 2.58; 2.58 ÷ 16.25 ≈ 0.158769 → total 2.158769 ≈ 2.159.

4) Why the sol is overvalued
- PPP implies 1 peso should buy about 2.159 soles. The market actually trades at 1 peso = 2.00 soles. Because 1 peso buys fewer soles than PPP implies, the sol is stronger than PPP would predict — i.e., overvalued.
- To express the strength the other way: convert to pesos per sol. Implied = 1 ÷ 2.159 ≈ 0.4633 pesos/sol; actual = 1 ÷ 2.00 = 0.50 pesos/sol. The sol actually buys about 0.50 pesos vs. the PPP-implied 0.4633, meaning the sol is roughly (0.50 − 0.4633)/0.4633 ≈ 7.9% stronger (overvalued) relative to the peso.

5) Why other answers are incorrect
- “Undervalued” would require actual soles/peso > implied (i.e., pesos buy more soles than PPP implies), which is not the case. 
- “At parity” would require actual = implied (2.00 ≠ 2.159), so it’s not fairly valued.

6) Conclusion
Because the actual soles-per-peso rate (2.00) is lower than the PPP-implied rate (≈2.159), the sol is overvalued. This confirms the provided answer: overvalued.

Similar Questions

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