Frequently Asked Questions
What is the Big Mac Index?
The Big Mac Index is a lighthearted guide to whether currencies are at their "correct" level. It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of an identical basket of goods and services (in this case, a Big Mac burger) in any two countries.
How is the Big Mac Index calculated?
The index is calculated by dividing the price of a Big Mac in one country (in its local currency) by the price of a Big Mac in another country (in its local currency), and then comparing this result to the actual exchange rate between the two currencies. If the resulting value is higher than the actual exchange rate, the first currency is considered overvalued; if it's lower, it's undervalued.
Where does the data come from?
The data for the Big Mac Index is collected by The Economist from McDonald's restaurants in various countries around the world.
Is the Big Mac Index a serious economic tool?
While it's a simplified and informal measure, the Big Mac Index has become a global standard, included in several economics textbooks and the subject of at least 20 academic studies. It's a useful tool for understanding currency valuation in an accessible way.