There is a theory in Economics called the “Big Mac Index.” This is a theory devised by the Economist magazine to illustrate the real value of currencies. The idea is that a Big Mac produced in the United States should have the same relative value as a Big Mac produced in another country. By comparing the price of Big Macs in those two countries, you establish a Big Mac exchange rate. You then compare that to the actual exchange rate of the countries’ currencies. If the currency exchange rate is greater than the Big Mac rate, it suggests the currency is overvalued; if it’s lower, then the currency is undervalued.
Do you think this a good theory? Do you think it is an accurate theory?
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