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Sunday, May 1, 2011

Economics:  The Big Mac Index

Martha contributed ...

The [Big Mac] index is based on the idea of purchasing-power parity, which says that a currency's price should reflect the amount of goods and services it can buy. Since 14.5 yuan can buy as much burger as $3.71, a yuan should be worth $0.26 on the foreign-exchange market. In fact, it costs just $0.15, suggesting that it is undervalued by about 40%.

From An Indigestible Problem, October 14, 2010 at The Economist.

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