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When would a business use purchasing power parity? How does it affect globalization of a company's products? How does the Big Mac Index relate to purchasing power parity?
On May 07, 2024
A frequently used metric of an overall economy is the purchasing power parity (PPP), a theory that states that if the exchange rates of two countries are in equilibrium, a product purchased in one will cost the same in the other, if expressed in the same currency. A novel metric that employs PPP to assess the relative economic buying power among nations is the Big Mac Index, developed by and published in The Economist, which suggests that exchange rates should adjust to equalize the cost of a basket of goods and services, wherever it is bought around the world.