In this video, you will learn about the Big Mac index, its formula, and how it works.
#bigmacindex #ppp #wallstreetmojo #cpi #currencyexchange
Chapters:
00:15 – Introduction
00:33 – What is the Big Mac index?
01:45 – Formula
02:40 – Big Mac index vs CPI
03:40 – Conclusion
What is the Big Mac index?
The Big Mac index, also known as burgernomics, is a currency comparison tool that uses the cost of a McDonald’s Big Mac burger to measure the purchasing power parity between countries.
The Economist magazine introduced it in 1986 as a fun and interactive way to measure currency imbalances.
The index uses the US Dollar as its base currency and compares the price of a Big Mac burger in other countries to the relative cost of the burger in the US.
(Explained in detail in the video)
Formula
Calculating the Big Mac index involves comparing the price of a Big Mac in two countries, A and B, and dividing it by the exchange rate of the base currency.
Big Mac Index vs CPI
The CPI is criticized for its susceptibility to manipulation and political influence. In contrast, the Big Mac index is seen as a more comprehensive and reliable tool for measuring the cost of living.
The price of a Big Mac reflects various factors, including fixed costs, making it less prone to manipulation.
Studies suggest that the Big Mac index is often a more accurate measure of PPP. Thus, it may help understand the cost of living and PPP in different countries.
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