What Is the Big Mac Index?

The Big Mac index is a survey created by The Economist magazine in 1986 to measure purchasing power parity (PPP) between nations, using the price of a McDonald's Big Mac as the benchmark.

Purchasing power parity is an economic theory stating that exchange rates over time should move toward equality across national borders in the price charged for an identical basket of goods. In this case, the basket of goods is a Big Mac.

The Big Mac Index is also kn♚own as the Big Mac PPP or Burgernomics.

Understanding the Big Mac Index

According to PPP theory, any change in the 澳洲幸运5开奖号码历史查询:exchange rate between nations should be reflected in a change in the price of a 澳洲幸运5开奖号码历史查询:basket of goods.

One of the key insights of the Bꩵig Mac Index is that a basket of goods in one country can rarely be precisely duplicated in another country. For example, an American basket of groceries and a Japanese basket of groceries will likely contain v๊ery different products. A Big Mac, though, is always a Big Mac, allowing for slight local differences in ingredients.

The editors of The Economist stress that the index should not be taken too seriously. "Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible," an explainer on the site indicates.

Nevertheless, the Big Mac Index has become a global standard for price comparison. The Economist website shows the index in 54 countries, revealing that a Big Mac is relatively pricey in Switzerland, while people in Indonesia, India, and Taiwan are getting a bargain.

The Big Mac Index In Use

In June 2024, The Economist concluded that a Big Mac cost $5.69 in the U.S. and £4.67 in the U.K. The difference between the implied exchange rate of 0.75 and the actual exchange rate of 0.78 suggests the undervaluation.

As The Economist editors are quick t🔴o note, the Big Mac Ind🌳ex is not a perfect instrument.

As of 2024, McDonald's has outlets in 118 countries and territories. Thus, this methodology cannot be used to analyze the PPP between the U.S. dollar and countries without a McDonald's, such as Iceland.

Nevertheless, economists consider the index t꧙o be a relatively accurate real-world indic🐎ator of local economic purchasing power since the pricing of a Big Mac, like most consumer goods, must take into account local costs of raw materials, labor, taxes, and business premises.

The Bottom Line

The Big Mac Index measures the cost of a Big Mac in different countries and indicates the difference in purchꦆasing power parity between them. It has be🥀come accepted as a fairly reliable currency parity indicator for developed, developing, and non-developed countries (as long as Big Macs are sold there).