Big Mac Index: how to measure the world economy for the price of a hamburger

Big Mac Index: how to measure the world economy for the price of a hamburger

Big Mac Price Spain:

How much does a Big Mac in Spain? 3.65 euros. And in China? 172 yuan. And in Ukraine? 19 grivnas. 

The most famous burger in the world is also an economic index that the magazine The Economist created in 1986 to assess whether currencies are or not in a correct parity against the dollar. Since then, published twice a year the Big Mac index , the last, last January.

The average price of a Big Mac in the US was $ 4.79. The index is based on the theory of purchasing power parity (PPP): one US dollar converted into local currency at the exchange rate prevailing should be able to buy the same quantity of goods or standard services (one basket) in all countries of the world.

In this case, the shopping cart is only the Big Mac and, according to this index, the Swiss franc -the first-rate currency would be appreciated by more than 50% so as to change a Big Mac cost 7.54 dollars while the hryvnya -in latter position would be devalued by 75% since eating a burger here would cost 1.20 dollars. In the  eurozone, the average price of a Big Mac was 3.8 euros , implying an undervaluation of 11% (4.26 dollars). With the same method, the index suggests that the yuan  would be devalued 42%.

Source: The Economist

One of the criticisms leveled against this index , which even has a gourmet version – is not taken into account labor costs, which would make it cheaper to buy the burger in a poor country than in a rich one . Although the magazine argues that the index is not intended as a precise tool, also it draws a correlation between prices and GDP per person to refine the analysis. The difference between the price provided by the red line for each country, given its income per person, and its real price gives a measure of the infra or supra currency valuation.

Hence, the picture changes and appears as the Brazilian real devalued the currency and most appreciated ruble.

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