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Big mac index short description
The Big Mac Index, published by The Economist since 1986, uses the price of a McDonald's Big Mac burger in different countries as a lighthearted way to measure purchasing power parity and determine if currencies are undervalued or overvalued. The index compares the local price of a Big Mac in one country to the price in the United States, with large differences suggesting the local currency may not be at an optimal level against the U.S. dollar based on purchasing power. For example, when the average Big Mac price in the U.S. was $4.37 and in China was $2.87, the index estimated the Chinese yuan was undervalued by 41% at that time based on purchasing power.
Big mac index short description
- 1. BIG MAC INDEX Published by “THE ECONOMIST” as an informal way of measuring the purchasing power parity between two countries currency 1986 as a light hearted guide to whether the currency are at ‘correct level’ Big Mac PPP is used to measure purchasing power parity between nations, using price of Big Mac as the Benchmark. With the Big mac PPP, purchasing power is reflected by price of McDonalds Big Mac in a particular country. The measure gives an impression of how over valued or undervalued a currency is. Big mac was chosen due to common availability of specifications. Big mac PPP exchange rate between two countries is obtained by dividing price of a Big Mac (in its home country currency) by the price of a Big Mac (in host Country currency). This than enables us to know to whether the currency is undervalued or overvalued. Average price of Big Mac in America is $4.37 and in china is $2.87 at market exchange rate. So Big mac index says Yuan undervalued by 41% at that time.