“If that basket costs $100 in the US and $200 in England, then the purchasing power parity exchange rate is 1:2.”The price of a McDonalds Big Mac, which informs the Big Mac Index, is an informal way of measuring PPP between different currencies. For example, whether one currency is over- or undervalued, compared to the other. If you divide the price of a Big Mac in the US in USD, by the price of a Big Mac in South Africa, in ZAR, you get the Big Mac PPP exchange rate. Stay with us now... We then compare that value with the actual exchange rate. If it's higher, the first currency is over-valued, and if it's lower the USD is under-valued.
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Link to original article including infographic here: http://www.attn.com/stories/11775/heres-how-big-mac-can-teach-you-about-world-economyIn South Africa, a minimum wage domestic worker earning R18.01 an hour would need to work 100 minutes to enjoy a Big Mac. That's nearly two hours. This tells us that not only is our minimum wage ridiculously low, but so is our purchasing power parity. In Australia, you can earn a Big Mac – on minimum wage – in less than 20 minutes. You'd have to work for 35 minutes in the US, 23 minutes in the UK, but 372 minutes in Afghanistan.