The Big Mac Index

The Big Mac Index was published by The Economist in 1986 as an informal way of measuring whether or not the world's currencies are at their correct levels. The Big Mac Index is based the theory of purchasing - power parity (PPP) which is an assumption that in the long run exchange rates would move towards the rate that would equalize the prices of any identical products subject to changes in any two countries. And yes, this was made based on a Big Mac and may or may not sound rational to some of us, but to economists a Big Mac from McDonald's is the perfect example to use. The Big Mac Index was never intended to become something of global standards, but for a simple tool to make the theory of PPP more easily understood. The Big Mac Index is now widely known throughout textbooks and even a term of Burgernomics has been formed.