Economic terms: General Awareness & Current Affairs Notes for TISSNET

Economic Terms – TISSNET Study Notes

(General Awareness & Current Affairs)

Goal – Understand the most common economic terms, why they matter, and how to compute them.
Format – Simple explanations → Key points → Worked example → Quick revision.

1. Why These Terms Matter for TISSNET

Policy Questions – RBI, Finance Ministry decisions are framed around these indicators.
Interview Context – You’ll be asked to explain, analyse or comment on any of these terms.
Data‑Driven Answers – Having the formulas ready lets you provide precise, evidence‑based responses.

2. Key Economic Terms

Term	Simple Explanation	Key Points
Gross Domestic Product (GDP)	Total value of all final goods & services produced within India in a year.	• Nominal uses current prices. • Real adjusts for price changes (inflation).
Gross National Product (GNP)	GDP + income earned by Indian residents outside India – minus income earned by foreigners inside India.	• Shows national income beyond borders.
Per‑Capita Income	National income (GDP or GNP) ÷ population.	• Indicator of average standard of living.
Inflation	Rise in the general price level over time.	• Measured mainly by CPI (Consumer Price Index).
Deflation	Fall in general price level.	• Rare in India but can hurt consumption.
CPI (Consumer Price Index)	Weighted average of price changes for a basket of consumer goods.	• Basis for cost‑of‑living adjustments.
WPI (Wholesale Price Index)	Weighted average of price changes at the wholesale level.	• Earlier used to gauge inflation; now CPI is preferred.
Price Index	Numerical measure of price level relative to a base year.	• Base year usually 100.
Monetary Policy	RBI’s actions (repo rate, reverse repo, CRR) to control money supply & inflation.	• Expansionary (low rates) → Stimulate growth. • Contractionary (high rates) → Tame inflation.
Fiscal Policy	Government’s use of tax & spending to influence economy.	• Expansionary (spending > revenue) → Boost demand. • Contractionary (revenue > spending) → Reduce deficit.
Fiscal Deficit	(Total expenditure – total revenue) excluding borrowings.	• 1% of GDP is the conventional target.
Fiscal Surplus	Excess revenue over expenditure.	• Rare in India; indicates healthy finances.
Debt‑to‑GDP Ratio	Total public debt ÷ GDP.	• Measures debt sustainability.
Current Account Balance	Net of exports & imports of goods, services, income, & transfers.	• Surplus = net inflow; deficit = net outflow.
PMI (Purchasing Managers’ Index)	Composite index of manufacturing & services activity.	• > 50 = expansion; < 50 = contraction.
Employment Rate	(Number of employed persons ÷ total workforce) × 100.	• Indicator of labour market health.
Unemployment Rate	(Number of unemployed persons ÷ total labour force) × 100.	• Lower is better.
Human Development Index (HDI)	Composite of life expectancy, education, and per‑capita income.	• Measures overall human development.

Tip: Memorise “GDP → real vs nominal; CPI → inflation; fiscal deficit vs surplus; debt‑to‑GDP” – these are the most tested.

3. Worked Example – Calculating Real GDP

Problem:
In 2023, India’s nominal GDP was ₹240 trn. The GDP deflator (price index) for 2023 is 112 (base year 2018 = 100). What is the real GDP for 2023 in 2018‑price terms?

Formula

[ \text{Real GDP} = \frac{\text{Nominal GDP}}{\text{GDP Deflator}/100} ]

Calculation

[ \text{Real GDP} = \frac{240,\text{trn}}{112/100} = \frac{240}{1.12} = 214.29,\text{trn} ]

Interpretation

The economy grew in real terms by (214.29 - (\text{previous real GDP})).
Price level increased by 12% relative to 2018.

Why It Matters

Real GDP shows true growth, eliminating the distortion of price changes.
Analysts use real GDP growth to evaluate policy effectiveness.

4. Quick Revision Summary

Concept	What it is	How to remember
GDP (Nominal vs Real)	Total output; Real adjusts for inflation	“Nominal uses current prices; Real uses base‑year prices.”
CPI	Consumer basket price index	“CPI → Cost of living.”
Inflation	CPI trend over time	“Inflation = price rise.”
Fiscal Deficit	Expenditure–Revenue (excluding borrowings)	“Deficit = spending > revenue.”
Monetary Policy	RBI rates & money supply	“Repo rate = lever for inflation.”
Debt‑to‑GDP	Public debt ÷ GDP	“Debt sustainability gauge.”
PMI	Composite of manufacturing & services	“>50 = growth.”
Employment vs Unemployment	Share of workforce employed / unemployed	“Higher employment = lower unemployment.”

Mnemonic:

GDP, CPI, I