If a Big Mac hamburger sells for the same dollar value in Tokyo as in Los Angeles then
A) exchange rates are said to be fixed.
B) purchasing power parity holds.
C) Japanese yen have been replaced by dollars in Tokyo.
D) the inflation rate in each country must equal zero.

Question

Quizplus · Accepted Answer

Purchasing power parity (PPP) holds when a good, like a Big Mac, costs the same in different countries when prices are converted into a common currency, indicating that exchange rates adjust to equalize the purchasing power of different currencies.

If a Big Mac Hamburger Sells for the Same Dollar