Big Mac Index (Big Mac PPP) is mainly a survey which is done by the Economist Magazine which indicates how to measure the purchasing power parity (PPP) between nations, applying the price of a Big Mac benchmark. The purpose of it is to point the changes in exchange rates which are applicable in the change in price of goods are remain constant across the borders.
International Economics By Robert Carbaugh (published by Cengage Learning, 2012)
International Financial Management By Thummuluri Siddaiah (published by Pearson Education India, 2010)
For example, if a Big Mac costs $4.00 in the U.S. dollar, but 2.5 pounds sterling in Britain. So accordingly the exchange rate would be 1.60 (4/2.5 = 1.60). If in any situation the conversation of exchange rate from dollars to pounds is counted any greater, then the Big Mac will declare that the pound was over-valued, and it would be under-valued if the price is any lower.
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