What is Big Mac Index?
The Big Mac Index was developed by The Economist in 1986. The study was aimed at studying purchasing power parity (PPP) in different countries. To do this, The Economist took the cost of a Big Mac at McDonald's as a benchmark since there are McDonald's almost everywhere in the world.
Purchasing power parity is a theory in economics that states that currency rates should, over time, tend to equalize across national borders in the price sellers charge for identical baskets of goods. In this case, a Big Mac was accepted as a basket of goods.
The Big Mac economic indicator is also often called the Big Mac PPP or Burgonomics.
According to the PPP theory, any change in the exchange rate between countries should be reflected in a change in the price of a basket of goods.
A study by The Economist has shown that one country's product mix can rarely be exactly replicated in another country. For example, the food basket in France will be very different from the food basket in China, so it is difficult to compare purchasing power in such different countries. But a Big Mac will always be a Big Mac, and it is convenient to take it as a standard.
However, it is worth remembering that the Big Mac indicator is not something that should be taken very seriously since this index was not conceived as an exact parameter.