THE BIG MAC INDEX

The Big Mac Index



The Big Mac Index

The Big Mac Index

Big Mac index was first launched in the economist, as a way of calculating purchasing power parity between two currencies and the results of the current review of the shell that market exchange rates in the cost of identical items in different countries. Its aim is to make the idea of the exchange rate a little more understandable. Economist Big Mac catalog based on the idea of parity, in which exchange rates should be adjusted to agree on the cost of a basket of goods and services purchases worldwide.

Cheapest place to buy a Big Mac is in Qatar and China. It costs about $ 0.38 and $ 1.30 respectively. The most expensive place to buy a Big Mac is in Iceland, which costs about $ 6.67, while in the U.S. costs about $ 3.17. Big Macs are comparatively cheaper in Asia. Since the cheapest burger in the Chinese region, where the cost is $1.30 as compared with the average U.S. price of $ 3.15, this make the Yuan undervalued by 59% (Chinn, 2000).

Factors Affecting the Price Difference

It is very obvious for charges to be less in third world countries than in comparatively developed countries. Although allegations for items swapped should be alike, non-tradable services will be smaller due to decreased wages. PPP, therefore, is the most dependable way to adjust the GDP per capita in dollars of the market exchange rates, because lesser allegations signify that money advances further. That's why all the poor countries have proposed the exchange rate of PPP is higher than the rate of the market today, which makes them appear undervalued. Theory shows that, as countries become more affluent, and the also experience a rise in their productivity; they also experience an appreciation ...