❖ Economics Dose ❖
National Income Concepts
Term Definition Formula
GDP – Gross Total value of all final goods GDP = C + I + G + (X –
Domestic Product and services produced within M)
the country's territory in a
year C = Private Consumption
I = Investment
G = Government
Expenditure
X = Exports
M = Imports
GNP – Gross Total value of goods and GNP = GDP + NFIA
National Product services produced by
nationals (residents) in a year, NFIA = Net Factor
regardless of location Income from Abroad
NNP – Net GNP after deducting NNP = GNP –
National Product depreciation (wear & tear of Depreciation
capital goods)
NI – National Actual income earned by NI = NNP at Market
Income(NNP at nationals after adjusting for Price – Indirect Taxes +
Factor Cost) taxes and subsidies Subsidies
PI – Personal Income actually received by PI = NI – Corporate Tax
Income individuals before paying – Undistributed Profit +
personal taxes Transfer Payments
PDI – Personal Income available to PDI = PI – Personal
Disposable Income individuals for spending or Taxes
saving after paying personal
taxes
National Income
Term Definition Formula Key Comparison
Real GDP (Real GDP measured at Real GDP = - Reflects true
Gross Domestic base year prices; (Nominal GDP ÷ growth
Product) removes inflation GDP Deflator) × - No inflation effect
effect 100 - Used for
comparison over
years
Nominal GDP GDP measured at No direct formula - Includes price rise
(Nominal Gross current year (used in other - Higher during
Domestic prices; includes formulas) inflation - Not ideal
Product) inflation for real growth
GDP Deflator Index to measure GDP Deflator = - Base year deflator
(Gross Domestic inflation within (Nominal GDP ÷ = 100
Product Deflator) GDP Real GDP) × 100 - If deflator >100 →
inflation
- Used to convert
nominal to real GDP
Government Budget
Term Definition Examples Key Points
Revenue Government spending - Salaries - Recurring in
Expenditure that does not create - Interest payment nature
any asset or reduce - Subsidies - No future return
any liability - Defence expenses expected
- Affects day-to-day
operations
Revenue Income that does not - Tax revenue - Regular source of
Receipt create any liability or (Income tax, GST) govt income
reduce any asset - Non-tax revenue - No repayment
(Fees, Fines, involved
Dividends)
Capital Government spending - Infrastructure - Long-term asset
Expenditure that creates asset or (roads, bridges) creation
reduces liability - Loans to PSUs - May give future
- Repayment of returns
loans
Capital Receipts that create - Borrowings - Often non-
Receipt liability or reduce - Disinvestment recurring -
asset - Loan recovery Includes both debt
and non-debt
sources
Money Supply Measures
Measure Definition Formula
M0 Total money supplied by RBI M0 = Currency in Circulation +
and held by public and banks Bankers’ Deposits with RBI + Other
Deposits with RBI
M1 Most liquid part of money M1 = Currency with Public +
supply used for immediate Demand Deposits in Banks + Other
transactions Deposits with RBI
M2 M1 plus savings in Post Office M2 = M1 + Savings Deposits with
(excluding time deposits) Post Office (excluding time
deposits)
M3 Most commonly used measure; M3 = M1 + Time Deposits with
includes time deposits Banks
M4 Widest measure of money M4 = M3 + Total Deposits with
supply including all bank and Post Office (including time
post office deposits deposits)
Notes:
• Narrow Money: M1 and M2 → High liquidity, mostly used in day-to-
day transactions.
• Broad Money: M3 and M4 → Less liquid but represents the actual
monetary resources available in the economy.
• Liquidity Order:
M0 > M1 > M2 > M3 > M4
(Liquidity decreases from left to right)
Financial Institutions
Institution Year Established Under
RBI (Reserve Bank of India) 1935 RBI Act, 1934
SEBI (Securities and Exchange 1988 SEBI Act, 1992
Board of India) (Statutory:
1992)
NABARD (National Bank for 1982 NABARD Act, 1981
Agriculture and Rural Development)
SIDBI (Small Industries 1990 SIDBI Act, 1989
Development Bank of India)
IRDAI (Insurance Regulatory and 1999 IRDA Act, 1999
Development Authority of India)
PFRDA (Pension Fund Regulatory 2003 PFRDA Act, 2013
and Development Authority) (Statutory:
2014)
EXIM Bank (Export-Import Bank of 1982 Export-Import Bank of
India) India Act, 1981
NHB (National Housing Bank) 1988 NHB Act, 1987
IFCI (Industrial Finance Corporation 1948 Special Act of
of India) Parliament (1948)
DFC / DFIs (Development Financial Various Not under a single act;
Institutions) policy-based
Quantitative Tools of Monetary Policy
Tool / Definition Type / When When
Term Impact Increased Decreased
RR (Repo Rate at which Liquidity Loans become Loans cheaper
Rate) RBI lends short- tool costly → Less → More
term money to borrowing → liquidity →
banks Controls Boosts growth
inflation
RRR Rate at which Absorbs Banks park Banks invest
(Reverse RBI borrows excess more money less in RBI →
Repo Rate) from banks liquidity with RBI → More money in
Less money in market
market
CRR (Cash % of total Liquidity Less money More money
Reserve deposits banks control with banks → with banks →
Ratio) must keep as Controls Boosts lending
cash with RBI inflation
SLR % of deposits Controls Reduces Increases
(Statutory banks must bank lending capacity lending
Liquidity invest in govt liquidity of banks capacity
Ratio) securities
Bank Rate Long-term Inflation Expensive Cheaper
interest rate at control tool borrowing → borrowing →
which RBI lends Controls Encourages
to banks inflation investment
Hawkish RBI policy Uses rate Slows down —
Policy focused on hikes, raises spending
controlling CRR/SLR
inflation (tight
money)
Dovish RBI policy Uses rate — Encourages
Policy focused on cuts, lowers borrowing &
boosting CRR/SLR growth
growth (easy
money)
Five Year Plans
Plan Duration Motto / Focus Growth Major Projects /
Target vs Highlights
Achieved
1st Plan 1951–56 Agriculture, Target: 2.1% - Bhakra-Nangal
Irrigation Achieved: Dam
3.6% - Community
Development
Program
2nd Plan 1956–61 Industrial Growth Target: 4.5% - Steel Plants at
(Nehru–Mahalanobis Achieved: Bhilai, Durgapur,
Model) 4.3% Rourkela
3rd Plan 1961–66 Self-reliant Economy Target: 5.6% - Wars & drought
Achieved: disrupted progress
2.8% - Panchayat Raj
promoted
Plan 1966–69 Annual Plans due to — - Shifted focus to
Holiday war & drought food production
4th Plan 1969–74 Growth with Target: 5.7% - Green Revolution
Stability & Self- Achieved: began
Reliance 3.3% - Nationalization of
14 banks
5th Plan 1974–79 Poverty Removal Target: 4.4% - Minimum Needs
(Garibi Hatao) Achieved: Program
4.8% - Indian National
Highway System
Rolling 1978–80 Janata Govt. — - Concept of rolling
Plan discarded 5th plan plans introduced
6th Plan 1980–85 Poverty Alleviation Target: 5.2% - IRDP, RLEGP
& Modernization Achieved: launched
5.7% - Tech focus begins
7th Plan 1985–90 Employment, Social Target: 5.0% - Jawahar Rozgar
Justice Achieved: Yojana
6.0% - Education &
welfare focus
Annual 1990–92 Transition phase due — - LPG policy
Plans to political instability prepared
8th Plan 1992–97 Economic Reforms Target: 5.6% - LPG reforms
& Human Achieved: launched
Development 6.8% - Self-Employment
schemes
9th Plan 1997– Growth with Equity Target: 6.5% - Focus on agriculture
2002 Achieved: & women
5.4% empowerment
10th 2002– Faster & Inclusive Target: 8% - MNREGA Act
Plan 2007 Growth Achieved: 2005
7.6% - Education for All
11th 2007– Faster & Inclusive Target: 9.0% - Right to Education
Plan 2012 Growth (same motto) Achieved: Act
8.0% - Mid-Day Meal
expansion
12th 2012– Faster, More Target: 8.0% - Food Security Act
Plan 2017 Inclusive and Achieved: 2013
Sustainable Growth ~6.5% - Skill Development
Mission
Note: Post-2017, NITI Aayog replaced Planning Commission. No more
Five-Year Plans. Instead, 3-Year, 7-Year, and 15-Year Vision Documents are
followed.
