3. More detail By definition: The Big Mac Index is an informal way of measuring the purchasing power parity (PPP) between two currencies and provides a test of the extent to which market exchange rates result in goods costing the same in different countries. The name Big Mac comes from the Big Mac hamburger sold at McDonald's.
4. As mentioned before, the index is based on the theory of purchasing-power parity , the notion that a dollar should buy the same amount in all countries. Thus in the long run, the exchange rate between two countries should move towards the rate that equalises the prices of an identical basket of goods and services in each country.
5. The Big Mac was chosen because it is available to a common specification in many countries around the world, with local McDonald's franchises having significant responsibility for negotiating input prices. For these reasons, the index enables a comparison between many countries' currencies.
