The Big Mac Index Uses the Price of a Big

question 138

Multiple Choice

The Big Mac Index uses the price of a Big Mac in local currencies around the world as a way of testing the purchasing power parity theory.Which of the following partially explains why the PPP theory does NOT apply to the Big Mac Index?  

• A) because wages do NOT differ across countries 
• B) because trade barriers, such as tariffs and quotas on beef, may distort local prices 
• C) because taxes do NOT distort local prices 
• D) because rent does NOT vary substantially across countries

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Definitions:

Economic Contraction

A decline in the national output as measured by GDP, often associated with a decrease in spending and investment.

Disposable Personal Income

The amount of money that individuals have available to spend and save after income taxes have been accounted for.

Investment Component

The portion of a financial plan or policy that involves putting capital into assets expected to yield returns over time.

Education

The process of facilitating learning, or the acquisition of knowledge, skills, values, beliefs, and habits through various means including teaching, training, and research.