Daily chart - What can burgers tell us about foreign-exchange markets? | Graphic detail | The Economist FEATHERS WERE ruffled in America in the great chicken-sandwich war of 2019, an online fight involving rival brands and their aficionados. But for economics enthusiasts the fast-food dish of choice will always be a McDonald’s Big Mac, whose price underlies the Big Mac index, The Economist’s light-hearted guide to global exchange rates. According to our latest batch of data, most currencies have strengthened against the dollar in recent months, as trade tensions between America and China have eased and global-growth prospects have improved. The Economist’s Big Mac index is based on the theory of purchasing-power parity, which holds that exchange rates should adjust until the price of an identical basket of goods costs the same everywhere. Which currencies are most over- and under-valued by this measure? Looking ahead, most economists expect growth in the global economy to accelerate in 2020, and the dollar to depreciate.
Economics Isn’t Dismal. It’s Useful. In an annual rite of passage, over a million Americans will enroll in their first economics class in the fall, and as the field of economics has evolved, these introductory classes are changing, too. Many economists these days view what we are teaching not so much as a specific subject matter but as a set of analytic tools that are relevant beyond the relatively standardized production and pricing decisions of the business world. This perspective has led modern economists to study families, education and health, much as they study business strategy, politics, and finance. This broader ambit for economic reasoning provides an opportunity to make introductory economic courses more useful to more students, exploring how these ideas can inform the thousands of decisions they confront each day. This approach requires a shift in vision. This shift helps students see that economics is a set of tools that can empower them, providing insight that will guide them toward better decisions.
Out of joint - What the Big Mac index tells you about currency wars | Finance & economics DESPITE A RECENT bout of weakness, the dollar still looks strong. Consider the Big Mac index, our lighthearted measure of currency valuation. Of the currencies of the 20 trading partners studied by America’s Treasury, our measure suggests that all have gained relative to the greenback since July, but that all apart from the Swiss franc are still cheap. Our burger-based index is based on the idea that prices should adjust over the long run, so that the same basket of tradable goods costs the same everywhere. As wages tend to be lower in poor countries, though, Big Macs there may be cheaper. Is the Big Mac index consistent with recent American policy on currency manipulators? Still, given currency gyrations over the past year, the Big Mac index could act as a cross-check on American policy. Consistent with this, Mexico has escaped penalties from the Treasury and the Commerce Departments; Vietnam has not. On other fronts, though, America’s recent actions are at odds with our index.
Economics is once again becoming a worldly science For the workers who are curious why their wages have not increased in the past decade – while the incomes of some, such as footballers, have soared – the Bank of England’s website has a reassuring message: ‘There is a method to this madness: the economic theory of supply and demand’. The bank’s website provides an ‘idiot’s guide’ to the economy that explains how ‘Supply and demand is a bit like an economist’s version of the law of gravity. It decides how much everything costs: a cup of coffee, a house and even your salary.’ The US Federal Reserve Bank provides similar explainers for Americans who want to understand how their country’s wealth is created or allocated, including a colourful downloadable infographic that shows how higher prices create additional supplies of goods, and lower prices create additional demand. On its website, the International Monetary Fund notes that supply, demand and price are ‘magic words’ that make the economist’s ‘heart beat faster’.