You notice that the price of a Big Mac in Argentina is 40 pesos. Here in the USA the price is $4.00.
a. What is the purchasing power parity exchange rate between Argentina and the USA?
b. If the actual exchange rate is 15 pesos to the $ is the Argentine currency undervalued or overvalued.
c. Assume that inflation in Argentina during the next year is expected to be 15% and that inflation in the USA is expected to be around zero. What would you expect to happen to the $/peso exchange rate?