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

9.22 baht

0.52
Oz

629 rupees

42.11
Pandora

34.99 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

9.22 baht

0.52	
Oz

629 rupees

42.11	
Pandora

34.99 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) via the Big Mac Index compares local Big Mac prices to a reference country to compute an implied exchange rate: implied ER = (local Big Mac price) / (reference Big Mac price). If the actual market exchange rate yields fewer local currency units per reference unit than the implied ER, the local currency is stronger (overvalued) relative to PPP; if it yields more units, the local currency is weaker (undervalued).

1) Relevant concepts
- Big Mac Index uses PPP: same good should cost the same in different currencies once exchange rates adjust.
- Implied ER = local price / reference price (here reference is Neverland: 16.25 pesos).
- Compare implied ER to actual ER (LCU per peso). If actual < implied → local currency is overvalued (you get fewer LCU per peso than PPP implies).

2) Step-by-step reasoning
- Use Neverland as the base (16.25 pesos per Big Mac).
- Compute Pandora’s implied ER in soles per peso.
- Compare implied ER to actual ER (2.00 soles/peso) and interpret the direction.

3) Calculations (all intermediate steps)
- Neverland Big Mac = 16.25 (base).
- Pandora Big Mac = 34.99 soles.
- Implied ER (soles per peso) = 34.99 / 16.25 = 2.153538462...
- Actual ER = 2.00 soles per peso.
- Difference = Implied − Actual = 2.153538462 − 2.00 = 0.153538462.
- Percent difference ≈ (0.153538462 / 2.153538462) × 100 ≈ 7.13%.

4) Why the correct answer is correct
Because PPP implies one peso should buy about 2.1535 soles, but the market actual rate buys only 2.00 soles. The sol therefore buys more pesos (is stronger) than PPP predicts — i.e., the sol is overvalued by roughly 7%.

5) Why other options are incorrect
- "Correctly valued": would require actual ≈ implied; they differ by ~7.1%.
- "Undervalued": would require actual > implied (one peso buys more soles than PPP), which is not the case.
- "No answer text provided.": irrelevant.

6) Conclusion
The sol is overvalued (matches the provided answer: overvalued).

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