Which of the following is used as an illustration of the PPP theory for estimating exchange rates?
A)the Composition of Official Foreign Exchange Reserves (COFER)
B)the black market rate
C)the import licensing ratio
D)the Big Mac Index

Question

Quizplus · Accepted Answer

The Big Mac Index, created by The Economist, compares the price of a Big Mac across different countries to estimate the exchange rate that would make the burger cost the same everywhere. This is a popular illustration of the PPP theory, which suggests that exchange rates should reflect the relative prices of goods and services between countries.

Which of the Following Is Used as an Illustration of the PPP