Everyone loves a good burger.
But what if we told you that the same burger moonlights as an economic tool?
A thread...
Well, back in 1986, The Economist introduced the “Big Mac Index” to evaluate the value of currencies across countries via McDonald’s ubiquitous Big Mac burger & this concept came to be known as Burgernomics.
So how does it work?
Suppose a Big Mac costs $5 in the US and 20 Yuan in China. The Big Mac exchange rate would then be 5:20 or 1:4.
However, if the actual exchange ratio was 1:5, investors might predict that the Yuan is cheaper/undervalued by 20%.
Hence, the burger based index is premised on the idea that burger prices around the world can help you judge whether a currency is too cheap or too dear.
Why just the Big Mac though?
Well, for starters, McDonald’s has a phenomenally wide reach in the world, and the survey itself includes ~120 countries
Moreover, the Big Mac is mostly produced to the same specifications around the world & hence, the costs of producing the burger should be relatively standard.