The Big Mac index uses prices of a common item to predict long-run changes in exchange rates.

Question

Quizplus · Accepted Answer

The Big Mac index was created by The Economist and is based on the theory of purchasing power parity, which suggests that exchange rates should adjust until the price of a basket of goods (in this case, a Big Mac burger) is the same in different countries. By comparing the prices of Big Mac burgers in different countries, the index can help predict whether a currency is overvalued or undervalued relative to another currency.

The Big Mac Index Uses Prices of a Common Item