Which of the Following Statements BEST Describes a Limitation of the Big

question 68

Multiple Choice

Which of the following statements BEST describes a limitation of the Big Mac Index?

• A)Profit margins vary by the strength of competition, which affects relative prices.
• B)The theory of PPP incorrectly assumes that there are barriers to trade.
• C)The Big Mac represents all possible commodities and services.
• D)Taxes have no effect on Big Mac prices.

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Definitions:

Budget Act

Legislation outlining how the government will manage its finances, including spending and revenue collection.

Fiscal Policy

Economic strategies involving tax and expenditure decisions by the government to affect the national economy.

Deflationary Gap

A situation in which the total spending in an economy is lower than the necessary amount to achieve full employment or potential output.

GDP

Gross Domestic Product, the total value of all goods and services produced within a country over a specified period.