Big Mac PPP



A survey done by The Economist that determines what a country's exchange rate would have to be for a Big Mac in that country to cost the same as it does in the United States. Purchase power parity (PPP) is the theory that currencies adjust according to changes in their purchasing power. With the Big Mac PPP, purchasing power is reflected by the price of a McDonald's Big Mac in a particular country. The measure gives an impression of how overvalued or undervalued a currency is.


The calculation of the Big Mac PPP-adjusted exchange rate looks at the price of a Big Mac in a given country and divides it by the price of a U.S. Big Mac. Let's say that we are looking at the Big Mac in China. If a Chinese Big Mac is 10.41 renminbi (RMB) and the U.S. price is $2.90, then - according to PPP - the exchange rate should be 3.59 RMB for US$1. However, if the RMB was actually trading in the currency market at 8.27 RMB for US$1, the Big Mac PPP would suggest that the RMB is undervalued.

  1. Purchasing Power

    The value of a currency expressed in terms of the amount of goods ...
  2. Exchange Rate

    The price of a nation’s currency in terms of another currency. ...
  3. New York Dollar

    The buying power of a U.S. dollar in the city of New York. The ...
  4. Burgernomics

    An economics term made popular by the Big Mac Index published ...
  5. Purchasing Power Parity - PPP

    An economic theory that estimates the amount of adjustment needed ...
  6. Fixed Exchange Rate

    A country's exchange rate regime under which the government or ...
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