The Big Mac Index was first developed by economists in 1986 as a straightforward tool to simplify currency theory. In modern popular economics, evaluating and contrasting currency valuations is a well-known metric.
To simply put, a Big Mac’s price in the US serves as the benchmark when the Big Mac index evaluates the purchasing power parity (PPP) of various currencies.
It serves as an exchange rate indicator as well as a display of Big Mac prices around the world relative to the US.
The cost of Big Macs in other countries can be used to determine whether a currency has more or less buying power than anticipated.
To do this, divide the local Big Mac price (in local currency) by the Big Mac price in the US to get an implied exchange rate.
It’s important to remember that this metric is fairly basic and ignores a number of variables, including taxes, regional production costs, and market barriers.
So now let’s see which country is selling the Big Mac at what price (Source: Visual Capita List):
The most expensive Big Mac in the world is found in Switzerland, where they cost $8.17 USD, which is 44% more than what they cost in the US. According to the Big Mac Index, the Swiss franc is 44% overpriced in relation to the US dollar.
However, according to the Big Mac Index, the currencies of a number of significant East Asian economies—including Taiwan, Japan, China, and South Korea—have significant undervaluations in relation to the US dollar.
So next time when you are having a Big Mac, think of the Big Mac Index, to calculate its metric.
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