This also gives you information about whether the currency of that country is under- or over-valued. This is an interactive site, so you can click onto the map and see how much the Big Mac will cost in various countries. Follow the LINK to the current Big Mac Index: The ECONOMIST’S “BIG MAC” INDEX This Index is located on the Economist Magazine’s website.

Watch the Video: “The Big Mac Index” (8:38).

This value is then compared with the actual exchange rate if it is lower, then the first currency is under-valued (according to PPP theory) compared with the second, and conversely, if it is higher, then the first currency is over-valued. The Big Mac PPP exchange rate between two countries is obtained by dividing the price of a Big Mac in one country (in its currency) by the price of a Big Mac in another country (in its currency).

For these reasons, the index enables a comparison between many countries’ currencies. The Big Mac was chosen because it is available to a common specification in many countries around the world as local McDonald’s franchisees at least in theory have significant responsibility for negotiating input prices. In the Big Mac Index, the basket in question is a single Big Mac burger as sold by the McDonald’s fast food restaurant chain. One suggested method of predicting exchange rate movements is that the rate between two currencies should naturally adjust so that a sample basket of goods and services should cost the same in both currencies Purchasing power parity.

Cost of a big mac in different states