"The Big Mac Index Is the Economist's Burger-Based Measure of Whether

question 312

Multiple Choice

"The Big Mac index is The Economist's burger-based measure of whether currencies are over- or undervalued.... [E]xchange rates should eventually adjust to make the price of a basket of goods the same in each country. Our basket contains just one item: the Big Mac hamburger, which is pretty much the same around the world."
The Economist, July 28, 2012
Which principle is The Economist relying on when using the Big Mac to value exchange rates?

• A) interest rate parity
• B) market price parity
• C) purchasing power parity
• D) exchange rate parity

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Definitions:

Temperament

An individual's innate predisposition towards emotional reactivity and intensity, influencing their behavior and interactions.

Psychodynamic Theorist

A psychologist or psychiatrist who applies the theories and practices of the psychodynamic approach, focusing on unconscious processes and childhood experiences.

Rational Decision Makers

Individuals or entities that make choices that maximize benefits while minimizing costs, based on available information and rational analysis.

Personality Development

The process of developing the organized pattern of behaviors and attitudes that makes a person distinctive over time.