ECON7520 – BIG MAC INDEX

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ECON7520 – BIG MAC INDEX

The big mac index is a tool that was published by the Economist. The tool was created in
1986 and the name is drawn from Big Mac, a hamburger that is sold by McDonald’s restaurants
in different countries. It serves as a tool to measure purchasing power parity (PPP) comparing
two given currencies (McConnell & Brue, 2004). It therefore provides a test of the how market
exchange rates are likely to result in costing goods in many countries. However, its accuracy as
an exchange rate measuring tool is debatable.

 

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ECON7520 International Macroeconomic and Finance, Semester 2 2017

(Total = 100pts)

1. Please type.
2. Please submit a hard copy of your homework to the School of Economics Reception located
on Level 6 of the Colin Clark Building (39) by 4pm on the due date. (Submission of a digital
copy by e-mail is not allowed except the case you provide a reasonable reason before the
deadline date.) ECON7520 – BIG MAC INDEX. 
1 Essay
Write an essay on the following topic. The grade of your essay is based on thoughtfullness and
clarity of logics in your explanation. ECON7520 – BIG MAC INDEX.
• Topic: The Big Mac Index
Write an essay in 1000 words, excluding reference, explaining the Big Mac Index and its
advantages and limitations in measuring PPP. Describe the possible cause(s) of the failure
of PPP that you learned in the lecture. Also, examine the conclusion from The Economist
(article link below) that “[t]he Chinese yuan, for example, is 44% undervalued against the
dollar”. The following articles can help you with the essay:

– http://www.economist.com/news/finance-and-economics/21714392-emerging-market-currencies-
and-euro-look-undervalued-against-dollar-our-big

– Ong, L.L., 1997. Burgernomics: the economics of the Big Mac standard. Journal of
International Money and Finance, 16(6), pp.865-878.

You are encouraged to search for more references or materials. The reference should be in Harvard
style and follow Sections 5.3 and 5.5 of the Guideline:
• http://www.uq.edu.au/economics/documents/studentguides/guidforassignpres.pdf
Finally, please put a word count of your essay, excluding reference. ECON7520 – BIG MAC INDEX.

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ECON7520 – BIG MAC INDEX

The big mac index is a tool that was published by the Economist. The tool was created in
1986 and the name is drawn from Big Mac, a hamburger that is sold by McDonald’s restaurants
in different countries. It serves as a tool to measure purchasing power parity (PPP) comparing
two given currencies (McConnell & Brue, 2004). It therefore provides a test of the how market
exchange rates are likely to result in costing goods in many countries. However, its accuracy as
an exchange rate measuring tool is debatable. ECON7520 – BIG MAC INDEX…….

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