[Music] many economists believe exchange rates should eventually adjust to make the price of a basket of goods the same in each country but the average basket of goods in America is different from the average Basket in China to overcome this problem The Economist introduced The Big Mac index in 1986 because apart from a few exceptions the Big Mac has the same ingredients worldwide comparing the price of the Big Mac in different countries we can see which countries currencies are currently under or overvalued but the theory does have some flaws while sesame seeds might be cheaper in China the cost of transporting them to America might eliminate any profits and there are import taxes too it's not just the ingredients that matter the price of Labor and rent is different from country to Country and even if you can import all the goods unless you're McDonald's you can't sell Big Macs so what can you use the Big Mac index for if you're an economist it still gives some indication how exchange rates will move in the long run if you're a consumer it gives you a rough idea of prices in other countries and how far your money will go and if you're really into Big Macs it's your travel guide