# Big Mac index

- Canonical URL: https://www.gerhardmerk.de/big-mac-index
- Post ID: 594875
- Modified: 2023-07-25T20:59:25+00:00
- Language: en

## Definition

Since 1986, the British business magazine "The Economist" has been calculating the ratio of the values of the most important currencies to each other. This involves determining - how much a standard product, the Big Mac, costs in the respective monetary unit in the internationally active McDonald's restaurant chain. Then - the price of a Big Mac in one country in its currency is divided by the price of the Big Mac in another country with the currency there. - The value thus obtained is compared with the current exchange rate. - From this, conclusions are drawn as to whether a currency is undervalued or overvalued on the stock exchanges (the Big Mac Index between two countries is obtained by dividing the cost of a Big Mac in one country [in its currency] by the cost of a Big Mac in another country [in its currency]. This value is then compared with the actual exchange rate. If it is lower, then the first currency is under-valued compared with the second; and conversely, if it is higher, then the first currency is over-valued). - The Big Mac index is still rejected by many as an "inadmissible miniaturization". Over the decades, however, it has become clear that this index can indeed be considered reliable. At the time, business journalists rightly assumed that the goods used to make a Big Mac were all produced domestically. In addition, the preparation and sale of the Big Mac mainly involve domestic services and taxes. The index is therefore based on the fact that the production and sale of a Big Mac involves numerous sectors of the domestic economy. Roughly seen, these represent a cross-section. - See Cross Rate, Purchasing Power Parity, Exchange Rate. Attention: The financial encyclopedia is protected by copyright and may only be used for private purposes without express consent! University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec. Professor Dr. Eckehard Krah, Dipl.rer.pol. E-mail address: info@ekrah.com https://de.wikipedia.org/wiki/Gerhard_Ernst_Merk https://www.jung-stilling-gesellschaft.de/merk/ https://www.gerhardmerk.de/

## Machine-readable

- Generator: Merk Knowledge 1.1.1