Mark Zuckerberg invited you to: Facebook’s IPO

By Mohammed Islam

 

 *If you are new to this topic, I would suggest reading the “terms-to-know” section at the bottom of the page before you start.

It’s quite amazing that within seven short years, Mark Zuckerberg’s Facebook has reached a valuation (according to private secondary markets) of over $100 billion.  It’s hard to believe.  But, then again, is it really?  According to Facebook’s initial public offering (IPO) filling, there are currently 850 million active monthly users.  Facebook has become a place where friends and family can communicate, gossip, and essentially share every last detail about their lives through “likes,” “relationship statuses,” “event invitations,” etc.  We spend a total of 12 billion hours per month on Facebook (I know, it blows my mind too), 20 million apps are downloaded every day, and more than half of employers actually use social networks to research potential job candidates (1).

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Embracing the new “ism”: Exploring New Possibilities for Human Advancement with Professor Partha Ghosh.

Interested in economic development? Whether it’s research in developing country markets or arguments challenging the status quo, current economic models may not be telling the whole story of future growth in these parts of the world. On a macroeconomic level, some believe that unrestricted free markets will not accomplish the goals necessary for developing economies to flourish to their full potential. On a microeconomic level, the eternal East-West debate continues: Is it truly possible to integrate Western ideologies with Eastern values? Professor Partha Ghosh of the Gordon Institute and Fletcher School attempts to answer all of these questions and more through his research.

Thinking about graduate school?

By Katrina Knisely

Many Tufts economics majors go on to pursue a variety of higher degrees in economics and related fields. This post contains some informal advice and helpful links to get started on your research. Interestingly enough, most of the seniors majoring in economics that I know aren’t going to graduate school next year, so I’m taking this opportunity to remind you that there is a great deal of real-world experience to be gained before pursuing a higher degree. Going straight into grad school, especially with an economics degree, is not for everyone. By now I’m sure you’re familiar with the term opportunity cost, which is something you should absolutely think about. That said, the types of degrees you can pursue with an econ background are VERY different from each other.

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The Big Mac Index: A (Tasty) Introduction to Exchange Rates

by Pierre Chalon

Some of you may be familiar with the numbers that often appear on television, websites or magazines regarding exchange rates, what they mean and what are their implications. If you’ve taken a course like International Economics or International Finance, this subject is one you’re likely to recognize.

Up until a few months ago, exchange rates and any statistics related to them meant very little to me. The Big Mac Index is a component of a little theory called “purchasing-power parity” (PPP) that may help you make some sense of something like:

£1 buys         change           %                    52 wk-h         52 wk-l

Euro               1.18100        +0.00070      +0.06             1.21280        1.10650

The theory suggests that that in the long run, exchange rates should move towards the level where the price of an identical basket of goods or services bought in two countries is the same. That point is known as the PPP exchange rate. These baskets of goods vary for every country depending on consumer preferences and spending patterns (what constitutes these baskets has often been a source of disagreement).

Here’s the interesting part. To simplify this theory and make it more accessible to people not necessarily knowledgeable about currency fluctuations, in 1986, The Economist magazine published the “Big Mac Index”, essentially a data table with prices of a single Big Mac burger in many countries in local currencies. The idea was to make the basket of goods merely a McDonald’s Big Mac burger so as to determine whether currencies were being over or under valued. How? Let me give an example. Let’s say the average Big Mac in America costs US$3.22 and 509 Kronur in Iceland (US$ 7.22 at the market exchange rate). This implies a PPP of 158 Kronur for a dollar (where they would equalize). We then compare the exchange rate of the currencies to the cost of a Big Mac to see where it would be cheaper overall to buy it. In this case, the actual dollar exchange rate is 68.4, meaning that the Icelandic krona is currently being over-valued by 131% and it should (in theory), depreciate against the US dollar.

Even though The Economist has stated many times that this indicator should not be taken seriously, many people closely follow the data given, as some believe it has currency fluctuation predicting capabilities. Over its twenty-year existence, the Big Mac index has come under a lot of scrutiny for its simplicity, but the magazine remains firm on their view that the data produced should not be interpreted extensively, that it is a simpler way of viewing PPP theory and has been continually publishing it several times a year. There is no doubt that its popularity stems from its simplicity and there have been other attempts that similarly dumb down the theory (i.e. the “IPod Index”).

Whether it is capable of predicting future trends in exchange rates is questionable but the Big Mac Index remains a useful (and tasty) modern economic theory that helps you understand currency fluctuations.

P.S. This type of analysis is also known as “Burgernomics” (no joke).