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How burgers secretly rule the world economy

Never in our wildest dreams had we imagined that anything to do with economics would leave us checking the fridge for food but Burgernomics is a real thing and you need to know about it.

The Big Mac Index, published by The Economist, is an actual price index that uses a McDonald’s Big Mac to measure the Purchasing Power Parity (PPP) between two currencies. 

What is Purchasing Power Parity? 

The basic principle behind PPP comes from the Law of One Price which is based on the assumption that in a world without trade costs and barriers, the price of a specific good should be the same. 

The exchange rate between two currencies should be such that the price of this good equalises.

The name comes from the idea that with the right rate, consumers should have the same purchasing power everywhere. The measurement shows how overvalued or undervalued a specific currency is in comparison to the other. 

Why Big Macs? 

Introduced by Pam Woodwall in 1986, the first Big Mac Index was published in The Economist and has stayed ever since, appearing annually in the magazine. It was supposed to be a humorous explanation of the PPP so that people like us can understand it and now it’s a popular scale of measurement.

Simply put, a Big Mac because people love Big Macs and it’s one of the most easily accessible fast food items, thanks to McDonalds’ mammoth takeover of the world. There’s a McDonald’s everywhere you go.

With so many people chowing down on it’s grub, it, in theory, has the ability to impact exchange rates. Such is the power of the fast food giant. 

An avid reader and writer, Manaal is known for her passion for telling stories. This passion results in her reading everywhere, on the metro, bus, and even in her dreams. In the rare instance, she isn't absorbed in a book, she can be found cuddling with cats, sleeping, and collecting an obscene amount of shoes.

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