Suppose the average price of a Big Mac in the United States is $3.50 while in Japan the average price is 400 yen. If the market exchange rate is that 1 dollar is exchanged for 100 yen, the purchasing power parity model of exchange-rate determination suggests that
A. the price of a Big Mac in Japan will rise.
B. the yen is overvalued.
C. the dollar will depreciate against the yen.
D. the yen value is about correct.
Answer: B
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