Case Interview Prep

Answer: B -The Big Mac Index as a measure of price comparison across countries is a type of purchasing power parity.

Key Takeaway: Purchasing Power Parity (PPP) uses the exchange rate theory to equalize the price of goods in two countries. For example, if the Big Mac costs $2.99 in the United States, an exchange rate calculation may reveal that a Big Mac costs $6.99 in Hong Kong or Paris. The goal of PPP is to study the effects of exchange rate fluctuations on the price of identical goods in different markets. Ideally, goods will have the same price in different markets.