ORLANDO, Fla. – The global economy is an incredibly complex machine, with plenty of goods and services making their way through several different countries. However, with dozens of different currencies worldwide, it can be tough to keep track of them all.
So, how do economists figure out what they’re all worth?
Cue the Big Mac.
McDonald’s staple burger has been used by economists since the 1980s to help track how much of one currency is equal to another, as The Economist (the creator of the index) reports.
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To keep it simple, the concept works like this: if you make an identical Big Mac in two separate countries, then however much that Big Mac sells for in each country should be a rough estimate of their exchange rates.
So if the burger costs $5 in the U.S. and ¥10 in Japan, then that means $1 is equal to about ¥2 — at least when it comes to buying burgers.
According to the Big Mac Index, countries like Switzerland (franc), Uruguay (peso) and Norway (krone) have much more over-valued currencies than in the U.S., whose dollar forms the base currency for the index.
While it’s not a perfect way to measure purchasing power between currencies (it’ll give you an estimate of where values should be in the long run), burgers are made up of pretty common ingredients and don’t tend to differ much from place to place, making them a great standard by which to judge.
“Burgernomics was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible,” The Economist states. “Yet the Big Mac index has become a global standard, included in several economic textbooks and the subject of dozens of academic studies.”
The next time you take a big bite out of a Big Mac, just remember that you’re not only having a fun fast-food meal — you’re showing economists worldwide what your burger is really worth.
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