Question

The Big Mac index and read "Currency comparisons, to go." Is one of these more useful than the other, or are they both useful, just in different situations?

Answer 1

the big mac index is an index which sees if the currencies are at there correct level or not. it is based on the purchasing power parity theory where the belief is that in the long run the exchange rate should move in the direction where the prices of basket of goods and services between contries are going to be equalised. as it is based on ppp theory if price of say a chocolate is cheaper in china than in US then its considered that the chinese currency is weaker than us. but it is not always true due to the fact that in developing countries and developed country the labour cost of producing something is different so the prices vary. in such cases currency comparision gives true value rather than the big mac index. so both the methods are good its only that the procedure used are different. both are usefull in different situations.