Big Mac Index

The Big Mac index, also known as Big Mac PPP, is a survey done by The Economist magazine that is used to measure the purchasing power parity (PPP) between nations, using the price of a McDonald's.

Retrieved January 31, Archived from the original on March 14,

Why are Implied PPP of the Dollar and Actual Dollar Exchange Rate not the same?

THE Big Mac index was invented by The Economist in as a lighthearted guide to whether currencies are at their “correct” level. It is based on the theory of purchasing-power parity (PPP.

Ukraine finally severs ties with Russia. Russian-led forces mount five attacks on Ukraine army in past day. Tomos for Ukraine is another act of declaring independence. No breakthrough in U. Archbishop warns of possible intensification of efforts by anti-Ukrainian forces over tomos. Ukrainian people have been waiting for this blessed day for seven centuries. Slower growth with lower inflation. Bartholomew signs tomos of autocephaly for Orthodox Church of Ukraine.

Work has been ongoing for five years. New records, old problems. Russian Orthodox Church to continue existing in Ukraine. Russia may stage act of terrorism to blame Ukraine. As a side note, China is notorious for keeping the value of their currency low in order to encourage exports and this is a a mini example of how that makes sense.

Someone in the United States could take their dollars and instead of getting a single Big Mac, buy 1. In effect, export 1. After the conversion we will have pesos which is only enough to buy. The way the Economist phrases it is a little bit confusing. For this column in the tables, just think of keeping the price of the Big Mac constant.

In the case of U. There are actually two answers to this question. In reality, no basket of goods is perfect. The second reason is that for policy reasons, countries will take actions to either devalue or increase the value of their currencies. Generally a lower currency value encourages exports and a higher currency value encourages internal consumption buying.

Also, as of now the dollar is still used to settle many international monetary transactions which increases demand for the dollar. I hope that this post helps to explain a little bit more about Purchasing Power Parity and some background on why there are such huge differences in the value of currencies.