Question

Go to The Economist website and search for the Big Mac Index for a recent time period. Compare the Purchasing Power of the United States with another country. Try to choose a country with which you are not very familiar. What does this parity say about the potential standard of living in the country you chose? What does it say about the potential wage level?

Answer 1

The purchasing power parity ( PPP) is the theory which focus on the nominal exchange rate will be such that the law of one price must hold .The nominal exchange rate between two countries will be a good one if the purchasing power parity holds a better value same with the other countries. We taking the data of US and brazil regarding the Big Mac index. Us on the Big Mac price in local currency based 4.33 that is per one us dollar. But brazil based valution is 10.08 based on the Brazil's local currency based and compared with the us dollar it very 3 times higher than the one us dollar. So we can say that the Big Mac index is varies between various nations.
The puchasing power parity describes the potential standard of living with compare of both country that is here Us and Brazil that can say that potential standard of living comparitively better in us than brazil.Brazil the potential wage level is better with skilled labours availability.And their minimum wage rate is increased to 1039 reais or 258 dollar.That is more efficient in the potential wage level parity .