Compute the PPP conversion factor using the Big Mac Index. For how many countrie

Question

Compute the PPP conversion factor using the Big Mac Index. For how many countries do you get a number greater than 1? Which ones? What can this tell us about the price levels in these countries?

Country Big Mac (local price) Exchange rate (local currency/dolar) GDP (billions) Population (millions) Australia 5.3 1.42 1,600.50 23.626 Austria 3.5 0.93 329.296 8.508 Belgium 3.95 0.93 402.027 11.204 Canada 5.84 1.41 1,974.83 35.492 Estonia 3 0.93 19.963 1.319 Finland 4.1 0.93 205.178 5.451 France 4.1 0.93 2,132.45 63.92 Germany 3.59 0.93 2,915.65 81.1 Greece 3.35 0.93 179.081 10.993 Ireland 3.95 0.93 189.046 4.61 Italy 4 0.93 1,616.25 60.783 Netherlands 3.45 0.93 662.77 16.864 New Zealand 5.9 1.51 237.767 4.555 Portugal 3 0.930232558 173.044 10.394 Spain 3.5 0.930232558 1,058.47 46.464 Switzerland 6.5 1.01 644.835 8.14 United States 4.93 1.00 17,348.08 319.075

Explanation / Answer

There are 12 such countries:

Austria, Belgium, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Netherlands, Portugal and Spain.

Because there curencies have ratio less than one. Hence they can purchase more Big Macs.

This also tells that prices for Big Mac are less than a dollar conversion amount in there countries.

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