US Big Mac Benchmark Price: $5.00
Select whether the local currency is undervalued or overvalued compared to the USD based on Big Mac prices.
Purchasing Power Parity (PPP) is an economic theory that compares different countries' currencies through a "basket of goods" approach. In this game, we use the price of a Big Mac as that basket.
Implied PPP exchange rate is calculated as: Local Big Mac Price / US Big Mac Price. This tells us how many units of local currency are needed to buy what $1 buys in the US.
For example, in Germany, the Big Mac price is €5.29 and the US price is $5.00. So, the implied PPP exchange rate is 5.29 / 5.00 = 1.06 EUR per USD. If the actual exchange rate is 0.91 EUR per USD, this suggests the Euro is **overvalued** against the dollar based on Big Mac prices.
Another example: In China, the Big Mac price is ¥24 and the US price is $5.00. So, the implied PPP exchange rate is 24 / 5 = 4.80 CNY per USD. The actual exchange rate is 7.20 CNY per USD, which means the Chinese yuan is **undervalued** against the dollar. Alternatively, we can flip it: 1 / 7.20 = 0.139 USD per CNY, while the PPP rate is 1 / 4.80 = 0.208 USD per CNY.
| Country | Local Big Mac Price | Actual Exchange Rate (per USD) |
Implied PPP Rate (per USD) |
Your Guess | Result |
|---|