International economics
Activity: Josko Joras (A), December 2012
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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. When the Argentinian government wanted to mask how much inflation was occurring they imposed price controls on the Big Mac. McDonald’s therefore tried to remove them from the menu to avoid having to sell them at a loss. For more, 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!)
Instructor Resource:
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| Learning Objectives: Perform foreign exchange calculations. Understand Balance of Payments |