1.
Basic Concepts
1. Microeconomics: Study of individual economic units like households, firms, and
specific markets, focusing on supply, demand, and pricing.
2. Macroeconomics: Study of the entire economy, dealing with national income,
inflation, unemployment, and economic policies.
3. Types of Economies: Classification based on who controls production –
○ Capitalist: Private ownership, driven by market forces.
○ Socialist: State ownership and central planning.
○ Mixed: Coexistence of private and public sectors (e.g., India).
4. Sectors of Economy: Categories of economic activities –
○ Primary: Natural resources (farming, mining).
○ Secondary: Manufacturing and construction.
○ Tertiary: Services (banking, transport).
○ Quaternary: Knowledge-based (IT, R&D).
○ Quinary: Top-level management roles (CEOs, policymakers).
2. National Income
5. GDP (Gross Domestic Product): Total value of final goods/services produced
within a country’s borders during a specific period.
6. GNP (Gross National Product): GDP plus net income from abroad, i.e., includes
income earned by nationals overseas.
7. NNP (Net National Product): GNP minus depreciation, representing the net
output after accounting for capital wear and tear.
8. NDP (Net Domestic Product): GDP minus depreciation, measuring net domestic
production.
9. Factor Cost vs Market Price:
○ Factor Cost: Cost based on payments to production factors.
○ Market Price: Factor cost + indirect taxes – subsidies.
10.Base Year: A reference year used for real GDP calculation to account for inflation
(India’s current base: 2011–12).
11.GDP Deflator: A price index that measures inflation using the ratio of Nominal GDP
to Real GDP.
12.GVA (Gross Value Added): Value of output minus intermediate consumption,
showing a sector’s contribution to GDP.
3. Money & Banking
13.Money Supply: Total money circulating in the economy, measured through
monetary aggregates like M0, M1, M3.
14.Monetary Policy: Central bank actions to control money supply and credit using
tools like Repo Rate, CRR, SLR, etc.
15.CRR (Cash Reserve Ratio): % of bank deposits held as reserves with RBI,
reducing funds available for lending.
16.SLR (Statutory Liquidity Ratio): % of deposits banks must maintain in liquid
assets (like gold, G-Secs).
17.Repo Rate: Interest rate at which RBI lends to commercial banks for short-term
needs.
18.Reverse Repo Rate: Interest rate at which RBI borrows from banks to absorb
liquidity.
19.Bank Rate: Long-term interest rate at which RBI lends to banks, less used today.
20.MSF (Marginal Standing Facility): Emergency window for banks to borrow
overnight from RBI at a rate above Repo.
21.OMO (Open Market Operations): RBI’s buying/selling of government securities to
regulate liquidity.
22.LAF (Liquidity Adjustment Facility): RBI mechanism for banks to borrow/lend
overnight via Repo & Reverse Repo.
23.SDF (Standing Deposit Facility): Facility for banks to park excess funds with RBI
without collateral.
24.Inflation: Sustained rise in general prices, reducing purchasing power.
25.CPI (Consumer Price Index): Tracks inflation from a consumer’s perspective,
includes services.
26.WPI (Wholesale Price Index): Measures price changes at the wholesale level,
excludes services.
27.Core Inflation: Inflation rate excluding volatile items like food and fuel.
28.Headline Inflation: The total inflation rate, including all goods/services.
29.Deflation: Sustained fall in prices, indicating economic slowdown.
30.Disinflation: Slower rate of inflation, still positive but falling.
31.Stagflation: Scenario of high inflation + high unemployment + low growth.
32.Phillips Curve: Shows an inverse relationship between inflation and
unemployment.
33.Financial Inclusion: Providing affordable access to banking and financial services
to the underserved.
34.NPA (Non-Performing Asset): A loan where interest/principal is overdue for more
than 90 days.
35.Basel Norms: Global banking regulations on capital adequacy, set by the Basel
Committee.
36.IBC (Insolvency and Bankruptcy Code): Law for resolving insolvency of
individuals/companies in a time-bound manner.
4. Fiscal Policy & Budget
37.Fiscal Policy: Government’s use of spending and taxation to influence the
economy (e.g., boost growth or reduce inflation).
38.Government Budget: Annual estimate of revenues and expenditures, presented
by the Finance Minister (April 1 – March 31).
39.Revenue Receipts: Government earnings that don’t create liabilities or reduce
assets, including tax and non-tax revenues.
40.Capital Receipts: Government receipts that create liabilities (like borrowings) or
reduce assets (like disinvestment).
41.Revenue Expenditure: Spending that does not create assets, e.g., salaries,
subsidies, interest payments.
42.Capital Expenditure: Spending that creates assets or reduces liabilities, e.g.,
infrastructure or loan repayments.
43.Fiscal Deficit: Excess of total expenditure over total non-borrowed receipts;
indicates total borrowing needs.
44.Revenue Deficit: Excess of revenue expenditure over revenue receipts; shows
borrowing for day-to-day expenses.
45.Primary Deficit: Fiscal Deficit minus interest payments; highlights borrowing
excluding past debt interest.
46.Effective Revenue Deficit (ERD): Revenue Deficit minus capital grants to states;
reflects a more accurate picture of revenue gap.
47.FRBM Act (2003): Law for promoting fiscal discipline and reducing deficits; sets
targets for deficit levels.
48.Public Debt: Total government borrowings, classified as internal (domestic) and
external (foreign) debt.
49.Taxation: Way for governments to raise revenue through direct taxes (e.g., income
tax) and indirect taxes (e.g., GST).
50.Finance Commission: A constitutional body (Article 280) that recommends tax
revenue distribution between Centre and States.
5. External Sector
51.BoP (Balance of Payments): A record of all economic transactions between a
country and the world; includes Current and Capital Accounts.
52.Current Account (BoP): Covers trade in goods/services, income, and transfers;
includes Trade Balance and Invisibles.
53.Capital Account (BoP): Records asset flows like FDI, FPI, loans, and NRI
deposits; shows capital inflow/outflow.
54.BoT (Balance of Trade): Difference between exports and imports of goods; a
subset of the Current Account.
55.Exchange Rate: The price of one currency in terms of another; can be fixed,
floating, or managed.
56.Depreciation vs Devaluation:
● Depreciation: Currency value falls due to market forces (floating rate).
● Devaluation: Government-induced decrease in fixed exchange rate.
57.FDI (Foreign Direct Investment): Long-term investment in a foreign business
involving control/ownership (e.g., factory setup).
58.FPI (Foreign Portfolio Investment): Short-term investment in financial assets
(like shares/bonds), without management control.
6. Poverty, Unemployment, Inclusion
59.Poverty: Lack of basic income or resources to meet minimal living standards.
● Absolute Poverty: Below fixed threshold (e.g., poverty line).
● Relative Poverty: Economic inequality within society.
60.Unemployment: Condition where people are willing and able to work but can't find
jobs.
● Types: Frictional, Structural, Cyclical, Disguised, Seasonal.
61.Inclusive Growth: Growth that ensures equal opportunity and fair distribution of
its benefits across society.
7. Other Key Concepts
62.Economic Growth vs Development:
● Growth: Rise in real GDP/national income.
● Development: Growth + improvement in living standards, measured via HDI.
63.Sustainable Development: Growth that meets current needs without harming
future generations, aligning economy, society, and environment.
64.Laffer Curve: Shows relationship between tax rate and tax revenue; beyond a
point, higher taxes may reduce revenue.
65.Lorenz Curve: Graph showing income distribution inequality — the further from
the diagonal, the greater the inequality.
66.Gini Coefficient: A numerical value (0 to 1) derived from the Lorenz Curve,
measuring income inequality.
67.MSP (Minimum Support Price): Government-guaranteed price to protect farmers
against price crashes.
68.PDS (Public Distribution System): Scheme to distribute food and essentials at
subsidized rates to the poor.
