PPP

The Big Mac Index measures the relative purchasing power of two currencies (also called their “purchasing power parity”). The index works by comparing the cost of a McDonald’s Big Mac in two different currencies. Because a Big Mac is a standardized product, comparing its cost in two currencies should predict the exchange rate between the two currencies.

Developed in 1920 by Gustav Cassel, Purchasing Power Parity also referred to as Real GDP is based on the law of one price which says that in an efficient market, identical goods should have only identical price. The most used purchase power parity exchange rate is referred to as international dollar and is a hypothetical currency that has the same purchasing power as a US Dollar has in the United States of America.