The Big Mac Index started as a joke by the magazine The Economist. The index was designed to try and compare the price of the same goods in two countries and in this case a McDonald's Big Mac. The Index has actually survived and has been taken more seriously since its inception. The index shows the difference between the exchange rate and the actual cost of the commodity. An example they give is the Big Mac cost about $5 in the US but $20 Yuan in China. So the commodity rate is 4 to 1. However, the actual exchange rate is 6 to 1 making the Chinese exchange deficient compared to the US dollar.
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