Economic Terms – Study Notes
Program: Rajasthan Forest Guard
Subject: General Awareness & Current Affairs
Topic: Economic Terms
These notes are crafted for quick learning, easy recall, and exam‑friendly revision.
Stick to the main points, use the worked example to remember how to calculate, and flash the summary for the last minute review.
1. Simple Explanation
Economic terms are words or phrases that describe the activities, policies, and measurements that influence how money moves in a country. Understanding them helps you interpret news, budgets, and government decisions.
2. Key Economic Terms
| Term | Definition (in a sentence) | Why it matters for the exam |
|---|---|---|
| Gross Domestic Product (GDP) | Total value of all final goods & services produced inside a country in a year. | Core indicator of economic growth. |
| Gross National Product (GNP) | GDP + net income earned by residents abroad – GDP – net income earned by foreigners. | Shows national income beyond borders. |
| Inflation | Sustained rise in price levels, usually measured by CPI. | Directly affects cost of living and policy decisions. |
| Deflation | Sustained fall in price levels. | Signals weak demand, affects spending. |
| Consumer Price Index (CPI) | Weighted average price change of a basket of consumer goods & services. | Main gauge for inflation. |
| Producer Price Index (PPI) | Price changes at the wholesale level. | Early signal of inflation. |
| Monetary Policy | Central bank actions (interest rates, reserves) that influence money supply & cost of borrowing. | RBI’s main tool to control inflation. |
| Fiscal Policy | Government’s use of spending & taxes to influence the economy. | Determines deficits, taxes, subsidies. |
| Reserve Bank of India (RBI) | India’s central bank, regulates money supply & banking system. | Key actor in monetary policy. |
| Repo Rate | Rate at which RBI lends to commercial banks. | Main lever to curb or stimulate inflation. |
| Reverse Repo Rate | Rate at which RBI borrows from banks. | Controls excess liquidity. |
| Cash Reserve Ratio (CRR) | % of deposits banks must keep with RBI. | Controls money supply. |
| Money Supply (M1, M2, M3) | Different measures of liquid cash in the economy. | Indicator of liquidity. |
| Fiscal Deficit | Government’s total borrowing requirement (budget deficit + debt service). | Indicator of fiscal health. |
| Primary Deficit | Fiscal deficit excluding interest payments. | Shows new borrowing needed. |
| Budget Surplus/Deficit | Difference between total receipts and total expenditure in a fiscal year. | Determines whether government is borrowing. |
| Taxation | Direct (income, corporate, wealth taxes) vs. Indirect (GST, excise). | Source of government revenue. |
| Goods and Services Tax (GST) | Uniform indirect tax on goods & services. | Replaces multiple taxes, simplifies compliance. |
| Public Debt | Total of all government borrowings (internal + external). | Measures fiscal burden. |
| Debt‑to‑GDP Ratio | Debt expressed as % of GDP. | Gauge of debt sustainability. |
| Foreign Direct Investment (FDI) | Investment by foreign entities that gives them control over a company. | Drives capital inflow & job creation. |
| Foreign Institutional Investor (FII) | Investment by foreign funds in Indian securities. | Influences capital markets. |
| Exchange Rate | Value of one currency relative to another. | Affects trade competitiveness. |
| Foreign Exchange Reserves | Foreign currency holdings of RBI. | Buffer against balance‑of‑payments crises. |
| Human Development Index (HDI) | Composite index of life expectancy, education, income. | Measures overall development. |
| Gini Coefficient | Measure of income inequality (0 = equal, 1 = unequal). | Indicates social equity. |
| Economic Liberalisation | Reforms that reduce state control, open markets. | Key driver of growth. |
| Public Sector Undertaking (PSU) | State‑owned enterprises. | Major employers & taxpayers. |
Tip: Remember that “GDP” is the production side, while “GNP” adds income earned abroad.
3. Worked Example – Calculating Inflation (CPI based)
Scenario:
- CPI in 2023: 250
- CPI in 2024: 260
Step‑by‑step:
-
Identify the base year CPI – 2023 = 250.
-
Identify the current year CPI – 2024 = 260.
-
Use the formula
[ \text{Inflation (%