Economic Indicators: Understanding the Numbers

Explication : A trade deficit means the country imports more goods than it exports. This can indicate strong domestic demand but also a loss of competitiveness.

Explication : The Big Mac Index compares the price of the famous hamburger in different countries to assess whether currencies are over or undervalued against the dollar, according to purchasing power parity theory.

Explication : The Gini coefficient measures income inequality in a population. It ranges from 0 (perfect equality) to 1 (total inequality). Scandinavian countries have low coefficients (~0.25), while some Latin American countries exceed 0.5.

Explication : Deflation is a general and sustained decline in prices. Contrary to what one might think, it is dangerous because it encourages consumers to postpone purchases, creating a vicious cycle of recession.

Explication : The HDI, created by UNDP, combines three dimensions: income (GDP/capita), health (life expectancy), and education (years of schooling). It provides a more complete picture of development than GDP alone.

Explication : The European Central Bank (ECB) sets key interest rates for the 20 eurozone countries. These rates influence the cost of credit for banks, then for individuals and businesses.

Explication : Nominal GDP is calculated at current prices, while real GDP is adjusted for inflation (constant prices). Real GDP allows comparing actual production between different years.

Explication : Stagflation combines economic stagnation (low growth, high unemployment) and inflation. It is a rare and difficult phenomenon to combat, notably observed in the 1970s after the oil shocks.

Explication : The Phillips curve shows an inverse relationship between inflation and unemployment: when unemployment falls, inflation tends to rise, and vice versa. However, this relationship has been contested since the 1970s.

Explication : The balance of payments records all economic transactions between a country and the rest of the world: trade in goods/services, investments, financial transfers. It is always balanced in accounting terms.

Explication : In a floating exchange rate regime, the currency's value is determined by supply and demand in the foreign exchange market. This is the system used by most major economies (euro, dollar, yen).

Explication : These aggregates measure the quantity of money in circulation. M1 = most liquid money (banknotes, coins, demand deposits). M2 = M1 + short-term deposits. M3 = M2 + negotiable monetary instruments.

Explication : The spread is the rate difference between a risky government bond and a safe reference (like the German Bund). A high spread indicates that investors perceive greater risk.

Explication : The Maastricht Treaty sets the debt-to-GDP ratio at 60% maximum. In practice, many countries exceed this threshold (France ~110%, Italy ~140%, Greece ~170%), raising questions about the viability of these criteria.

Explication : The Laffer curve shows that beyond a certain tax rate, tax revenues decrease because economic activity declines. It was used to justify tax cuts in the 1980s.

Explication : The Keynesian multiplier measures the effect of public spending on GDP. For example, a multiplier of 1.5 means €100 of public spending generates €150 of additional GDP through chain effects.

Explication : QE is an unconventional monetary policy where the central bank massively purchases assets (government bonds, etc.) to inject liquidity into the economy and stimulate credit and investment.