|Activity: Josko Joras (A), December 2012
Textbook Reading: Chapter 10 (Intro and Section 10.2 and 10.3; pp. 327-329 and pp. 342-357)
For an open economy
GDP = C + I + G + (X – M).
However it’s important to realise that imports don’t subtract from GDP.
Read more about the Big Mac index at The Economist. For more on how Argentina games it, see:
- “Argentina likely manipulating Big Mac prices to keep inflation seemingly lower“, Public Radio International, February 7th 2012
There are several nice utilisations of the Big Mac Index. For example, in a study that looked at the best cities in the world to study in, they used the Big Mac Index as a measure of living costs. (And if you’re curious, the best city in the world to study in is…. London!)
|Learning Objectives: Perform foreign exchange calculations. Understand Balance of Payments|