Big Macs and the Economy

Many years ago, the magazine The Economist came up with a humourous index of the relationships between the world’s currencies, it was called the Big Mac Index.

Information here.

From the Wikipedia article: The Big Mac Purchasing Power Parity exchange rate between two countries is obtained by dividing the price of a Big Mac in one country (in its currency) by the price of a Big Mac in another country (in its currency). This value is then compared with the actual exchange rate; if it is lower, then the first currency is under-valued (according to PPP theory) compared with the second, and conversely, if it is higher, then the first currency is over-valued.

That’s all well and good. It campares our currency with that of other countries.

What about inflation? Inflation should be able to be measured using this same principle – just compare your findings today with your findings from some fixed time in the past.

If the price is higher now, that’s inflation, if it’s lower, that’s deflation.

I remember, back when I first started college, I could get a Big Mac for $1, granted it was most likely a sale price, but now, the price of one is $3.57.

Since we’re starting at a baseline of $1, it’s easy to tell that it’s 257% inflation to arrive at its current price. (Though, I think the price after the sale was over was around the $2 level, so the inflation might not be as bad as 257%).

Of course, I can’t remember the price it was when the Double Cheeseburger placated it in early 2003.

But now, since 2003, a Double Cheeseburger (I’d love to know how many of these I’ve eaten as a poor college student) was $1.

A few days ago, shortly after it was officially announced we were in a recession, I was in town on business and went through the drive-thru and picked up two of them. Ordinarily, the price for this transaction would be $2.14, as each burger cost $1 and tax where I am is 7 cent per dollar. Easy math.

However, this time, my total rang up to $2.55. I asked the clerk what was up, as this was a bit more than usual, and I know the tax didn’t increase overnight.

I was informed that the price of the Double Cheeseburger had increased to $1.19, but there was a new burger designed to take its place, I forget the name, but Its only difference was it only had one slice of cheese, instead of the two the Double Cheeseburger had.

How about that? A slice of cheese.

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