What does the Big Mac Index measure?

The Big Mac Index is a tool used to measure purchasing power parity (PPP) by comparing the price of a Big Mac in different countries. By analyzing the prices of this ubiquitous fast-food item, the index provides insight into whether currencies are undervalued or overvalued relative to one another. The concept is that the same standardized product (the Big Mac) should have a similar cost in various locations if currency values are accurately reflecting local purchasing power. This approach simplifies the complex idea of PPP into a more relatable and tangible format, making it easier for the general public to understand the concept of currency valuation and economic disparities internationally. Utilizing the Big Mac as a common benchmark illustrates differences in cost of living and economic conditions across regions without getting bogged down in more complex economic data or metrics.