Monday, August 27, 2012

The Big Mac Index

When the September 1986 The Economist hit newsstands, it contained a new form of measuring purchasing power parity, which is a way of calculating the effectiveness of currency exchange rates.

The standard they used to measure this purchasing power parity? A McDonalds Big Mac. That’s right. Thanks to a woman named Pam Woodall and her semi-humorous take on world economics, financial minds across the world have referred to the Big Mac Index as a reasonable real-world measure of inflation and exchange rates.

So much so, in fact, that after being pointed out for a huge gap between its burger inflation and the country’s official rate, McDonalds chains all over Argentina were asked to sell Big Macs at a lower price to manipulate the country’s performance on the index.

The Economist now varies their items from time to time, using a Starbucks tall latte, for example, but the phrase “burgernomics” is still going strong!