Burgernomics - Explained
What is Burgernomics?
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Table of ContentsWhat is Burgernomics?Where did Burgernomics Originate?Academic Research on Burgernomics
What is Burgernomics?
Burgernomics as an economic slang was popularized by the Big Mac Index. It is a term used as an informal assessment of the purchasing power parity between currencies. Burgernomics measures the PPP between currencies based on the resolutions of the Big Mac index. The name 'Burgernomics' was derived from the Big Mac index and it was first used in 1986 by the Economists. It is an exchange rate that measures currencies as to whether they are under-valued or over-valued. However, when using burgernomics, it is important that the PPP between nations is measured using the McDonald's Big Mac as the price benchmark.
Back to: ECONOMIC ANALYSIS & MONETARY POLICY
Where did Burgernomics Originate?
According to the Economist, the Big Mac index is a benchmark used in measuring whether currencies are at their normal levels or otherwise. This burgernomics as an economic term holds that exchange rates between countries should be adjusted so that the price of goods and services across the countries will be equalized. For instance, the McDonalds' hamburger is expected to have the same price in countries where it is being sold. However, this might not be applicable in all countries due to the divergences of Big Mac in some countries. For instance, McDonalds does not sell beef in India, therefore customers are left with no choice than to purchase the "Maharaja Mac," containing chicken patties. This means that India cannot be included as part of the countries where the Big Mac index is applicable. Few other countries are in this category. Consumers do not stick to a particular taste for a long time, they are in constant search of a healthier and tastier option. In the United States for example, Big Mac sales have witnessed a decline since the 1980s due to change of taste by customers. Despite this, the Big Mac framework has been a benchmark and it is often used as an international monetary standard. However, in recent times, the Economist has adjusted the Burgernomics approach. The Economist magazine contained that the Big Mac Index "was never intended as a precise gauge of currency misalignment, merely a tool to make exchange-rate theory more digestible." This have rise to an adjusted index which measures the PPP of currencies with regard to Big Mac prices and the GDP of the countries.
- Purchasing Power Parity (PPP)
- Relative Purchasing Power Parity
- Law of One Price
- Balassa-Samuelson Effect
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