The Big Mac can also be a good indicator for the individual purchasing power of an economy since he exists worldwide in standard size, composition and quality.
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THE ECONOMIST's Big Mac index shows US dollar overvalued against most global currencies
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Big Mac index - global prices for a Big Mac 2018
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The Big Mac index
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McDonald's as a Purchasing Power Parity Index
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Big Mac Index - Wikipedia
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And, what better basket of goods than McDonald's Big Mac - or at least its equivalent - in various countries? In theory, the price of a Big Mac reflects a number of local economic factors, ranging from the cost of the ingredients to the cost of local production and advertising. The resulting PPP metric is therefore considered by many economists to be a reasonable measurement of real-world purchasing power.
But investors should remember that there are some important exceptions to the rule. The Big Mac Index is calculated by dividing the price of a Big Mac in one country by the price of a Big Mac in another country in their respective local currencies to arrive at an exchange rate. This exchange rate is then compared to the official exchange rate between the two currencies to determine if either currency is undervalued or overvalued according to the PPP theory.
For example, suppose that a Big Mac in the U. There are also many variants of the Big Mac Index that may be useful for investors.