Which of the following methods is directly derived from the theory of purchasing power parity (PPP)?
A) The floating exchange rate
B) The fixed exchange rate
C) The stock market index
D) The Big Mac index

Question

Which of the following methods is directly derived from the theory of purchasing power parity (PPP)? 
A) The floating exchange rate 
B) The fixed exchange rate 
C) The stock market index 
D) The Big Mac index

Quizplus · Accepted Answer

The Big Mac index is directly derived from the theory of purchasing power parity (PPP). PPP states that in the long run, exchange rates should adjust to equalize the prices of goods and services in different countries. The Big Mac index uses the price of a Big Mac burger in different countries to gauge whether currencies are over- or under-valued relative to each other, based on PPP.

Which of the Following Methods Is Directly Derived from the Theory