Explain the Principles on Which the Economist's Big Mac Index

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The Answer is The Big Mac index is built on an application of purchasing power parity, using the Big Mac in the various international markets as the basket of goods. Purchasing power parity says that a currency's price should reflect the amount of goods and services it can buy. Big Macs are asked to follow the law of one price. A recent comparison, for example, revealed a very inexpensive burger in China. This suggests that the Chinese currency is undervalued.
The use of the Big Mac index to international managers is that it gives them a quick heuristic to get a sense of a new market.

Explain the Principles on Which the Economist's Big Mac Index

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Explain the Principles on Which the Economist's Big Mac Index

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Correct Answer:
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