"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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