Tuesday, April 29, 2014

Chapter 11: International Economics

6.
In one of his examples discussing the rate changes in currency, Wheelan mentions "burgernomics"(250). He uses the example of McDonald's Big Mac prices in China compared to the United States (thus the term, burgernomics). Using the method of comparison in how much it costs two countries to purchase one item in their own monetary unit (such as buying a Big Mac), it would be expected that the ending payment for the item would be in relation to the actual value of the dollar or value of the currency used. However, in Wheelan's example, it was found that "the renminbi massively undervalued what 'burgernomics' would predict"(250). Wheelan then explains the problem, "The Chinese government has promoted economic policies that rely heavily on a "cheap" currency"(250). Every currency is different and unique, and in that sense they have different purchasing power depending on country and state of economic growth. Changes in the prices of goods and services in the international market is tricky - what one expects is not always what one receives.

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