Burgernomics
Categories: Econ, Bonds, Regulations
While Burgernomics may not be on the menu at your local McDonald’s, the Big Mac plays a key role.
Coined by Pam Woodall of The Economist in 1986, Burgernomics is simply a measure of the purchasing power (PPP, or purchasing power parity) of different currencies using the price of a Big Mac in various countries.
In trying to determine if currencies are at their “correct” level, economists with time on their hands purchased Big Macs all over the world (or just looked up the price) to see if a Big Mac cost the same as it does in America using the current exchange rate.
For example, if you divide the price of a Big Mac in Nigeria by the price in the U.S., you end up with a PPP of 2,974 naira. However the actual dollar rate is 10,400 naira, suggesting that the naira is undervalued.
In other words, you could buy three times as many Big Macs in Nigeria as you could in the USA. Think about that the next time you choose your vacation spot.
