The Economist magazine has observed that the price of Big Macs is systematically positively related to a

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The Economist magazine has observed that the price of Big Macs is systematically positively related to a country's income level, just as is the general price level (recall the box on pages 125-127). If you go to the Economist's Big Mac standard website, at www.economist.com / content/big-mac-index, you will find an Excel spreadsheet containing the data on under/overvaluation for January 2013 (as well as for previous years' surveys). Go to the World Bank's World Development Indicators website, data.worldbank.org/indicator/, and find the most recent data on GNI (Gross National Income) per capita, PPP, for all countries. Use these data, together with the Economist data on Big Mac dollar prices, to make a graph of income per capita (horizontal axis) versus dollar Big Mac price (vertical axis). What do you find?

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International Finance Theory and Policy

ISBN: 978-0133423648

10th edition

Authors: Paul R. Krugman, Maurice Obstfeld, Marc J. Melitz

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