Question

Which of the following is true regarding the Big Mac Index?

A. It is an index calculated by McDonald's to determine if their Big Mac sandwiches are properly priced within international markets.
B. It calculates a per capita level of Big Macs that are sold in various countries of the world.
C. It can indicate whether a particular currency is undervalued.
D. It compares the value of a Big Mac to other items in a basket of goods economists traditionally use for economic analyses.
E. It provides the empirical foundation for a trickle-down theory of economics called Burgernomics.

Answer 1

The true statement regarding the Big Mac Index is that it can indicate whether a particular currency is undervalued by comparing the cost of a Big Mac across different countries.

Step-by-step explanation:

The Big Mac Index is an informal measure used to compare the purchasing power of different currencies by comparing the cost of a Big Mac in different countries. In response to the question, the correct statement is: C. It can indicate whether a particular currency is undervalued. This index, created by The Economist, is a lighthearted way to gauge whether currencies are at their "correct" level based on the theory of purchasing power parity (PPP).

PPP suggests that in the long run, exchange rates should move towards the rate that would equalize the prices of an identical basket of goods and services in any two countries. In this case, the basket is a Big Mac.