The ‘Big Mac Index’

The Big Mac Index is a simple and informal economic indicator that was created by The Economist magazine in 1986. It is used to compare the relative purchasing power of different currencies and assess whether a currency is overvalued or undervalued based on the price of a Big Mac sandwich at McDonald’s restaurants.

The basic idea behind the Big Mac Index is that a Big Mac is a standardized product available in many countries around the world, and its price can be used to gauge the relative value of currencies. If a Big Mac costs more in one country than in another when converted into a common currency (usually the US dollar), it suggests that the currency of the country where the Big Mac is more expensive is overvalued. Conversely, if a Big Mac is cheaper in one country, it suggests that the currency there is undervalued.

The Big Mac Index is not a precise or comprehensive economic indicator but rather a lighthearted and simplified way to illustrate concepts related to exchange rates and purchasing power parity (PPP). Economists and analysts use more sophisticated methods to assess currency valuation and analyze exchange rate movements, but the Big Mac Index remains a popular tool for making these concepts more accessible to the general public.

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