Answer the following questions:

1- What are the limitations of PPP and Big Mac Index? Name at least two.

2- How Big Mac index is used to see if a country is manipulating its official inflation rates? (Read Manipulation section below )

3- Check the current prices of Big Mac (you can check online) in Turkish Lira (TL) and US dollar as of this week or this month. Use this information to calculate the implied value of TL using Big Mac index? Is TL undervalued? Is this consistent with the calculation the Burger economics's website?

Manipulation

Critics of the presidency of Cristina Fernndez de Kirchner in Argentina and many economists believe that the government has for years falsified consumer price data to understate the country's true inflation rate. The Economist stated in January 2011 that Big Mac index "does support claims that Argentina's government is cooking the books. The gap between its average annual rate of burger inflation (19%) and its official rate (10%) is far bigger than in any other country." That year the press began reporting on unusual behavior by the more than 200 Argentinean McDonald's restaurants. They no longer prominently advertised Big Macs for sale and the sandwich, both individually and as part of value meals, was being sold for an unusually low price compared to other items. Guillermo Moreno, Secretary of Commerce in the Kirchner government, reportedly forced McDonald's to sell the Big Mac at an artificially low price to manipulate the country's performance on the Big Mac index. In June 2012, the price of the Big Mac value meal suddenly rose by 26%, closer to that of other meals, after The Economist, The New York Times, and other media reported on the unusual pricing. A Buenos Aires newspaper stated "Moreno loses the battle".