Big Mac Index Updated: Global Economics on a Sesame Seed Bun

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Big Mac Index
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Late last week, The Economist updated the Big Mac Index. A slightly tongue-in-cheek analysis, the index uses McDonald's (MCD) ubiquitous burger to compare the relative valuation of worldwide currencies. Since the Big Mac, which is available in most countries, is priced so that it isn't too much of a drag on a mid-level worker's wallet, its price in each country offers an interesting glimpse into the cost of living. Here's a video explaining how it works:



Countries with undervalued currencies -- where the Big Mac is cheap -- are able to sell their exports for lower prices. On the other hand, products made in countries with overvalued currencies are more expensive on the worldwide market.

Since the Big Mac index is based around the dollar, it's easy to see which countries would be a good bet for U.S. exports and which countries would be a hard sell. Not surprisingly, countries with export-oriented economies such as China, India, and South Korea tend to have undervalued currencies. On the other hand, Norway, Sweden, Brazil, Switzerland, Canada, and Venezuela all have highly overvalued currencies -- a factor that would make them more attractive for U.S. exports.

Given the United States' position as a global consumer, it isn't surprising that there are far more undervalued currencies on this index than overvalued ones. It makes sense for countries with strong manufacturing centers to keep their currencies undervalued, as it makes their exports cheaper -- and more attractive -- in U.S. stores.

If you're interested in seeing more, check out The Economist's interactive Big Mac map.

Here's a roundup of some of our favorite bizarre economic indicators. Let us know if we missed one!




Bruce Watson is DailyFinance's Savings editor. You can reach him by e-mail at bruce.watson@teamaol.com, or follow him on Twitter at @bruce1971.

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