Article of the Week - Big Mac Index

Le Big Mac Index
Or would you prefer a Royale with Cheese...
motherfucker!!

The Big Mac Index is published by The Economist as an informal way of measuring the purchasing power parity (PPP) between two currencies and provides a test of the extent to which market exchange rates result in goods costing the same in different countries. It "seeks to make exchange-rate theory a bit more digestible".

The index takes its name from the Big Mac, a hamburger sold at McDonald's restaurants.

The Big Mac index was introduced in The Economist in September 1986 by Pam Woodall as a semi-humorous illustration and has been published by that paper annually since then. The index also gave rise to the word burgernomics.

UBS Wealth Management Research has expanded the idea of the Big Mac index to include the amount of time that an average worker in a given country must work to earn enough to buy a Big Mac. The working-time based Big Mac index might give a more realistic view of the purchasing power of the average worker, as it takes into account more factors, such as local wages.

For example, using figures in July 2008:

1. the price of a Big Mac was $3.57 in the United States (Varies by store)
2. the price of a Big Mac was £2.29 in the United Kingdom (Britain) (Varies by region)
3. the implied purchasing power parity was $1.56 to £1, that is $3.57/£2.29 = 1.56
4. this compares with an actual exchange rate of $2.00 to £1 at the time
5. [(2.00-1.56)/1.56]*100= +28%
6. the pound was thus overvalued against the dollar by 28%

This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Big Mac Index"