Economic Terms – Study Notes
Tamil Nadu TET – General Awareness & Current Affairs
1. Simple Explanation
Economic terms are the language of the economy.
They help us describe, measure, and understand the performance of a country – how much it produces, how fast it grows, how prices change, and how money flows in and out.
For the TET exam, you only need to know the definition, why it matters, and how it is used in everyday news.
2. Key Economic Terms
| Term | What it Means | Why It Matters | Example |
|---|---|---|---|
| Gross Domestic Product (GDP) | Total value of goods & services produced inside a country in a year. | Indicator of economic size & growth. | India’s GDP 2023 = ₹280 trn. |
| Gross National Product (GNP) | GDP + income earned by residents abroad – income earned abroad by foreign residents. | Shows total income of residents. | GNP = ₹295 trn. |
| Inflation | Rise in general price level over time. | Affects purchasing power & cost of living. | CPI rose 4.8 % in Jan‑24. |
| Deflation | Fall in general price level. | Rare, often signals recession. | Prices fell 1.2 % in March‑24. |
| Unemployment Rate | % of labor‑force that is job‑seeking but unemployed. | Measures labor market health. | 6.5 % in Q1‑24. |
| Fiscal Policy | Government’s use of taxes & spending to influence economy. | Controls aggregate demand. | Expansionary: lower taxes, higher spending. |
| Monetary Policy | Central bank’s control of money supply & interest rates. | Influences inflation & growth. | RBI cuts repo rate to 4.0 %. |
| Interest Rate | Cost of borrowing money. | Affects investment & consumption. | Home loan rate 7.5 %. |
| Exchange Rate | Value of one currency vs another. | Determines export competitiveness & import cost. | ₹1 = $0.012. |
| Balance of Payments (BOP) | Record of all international transactions. | Shows country’s external position. | Current account deficit ₹15 trn. |
| Current Account | Trade in goods/services + income + unilateral transfers. | Indicates trade health. | Exports ₹3 trn, imports ₹4 trn → deficit ₹1 trn. |
| Capital Account | Investments (FDI, FPI) & other capital flows. | Reflects capital inflow/outflow. | FDI inflow ₹15 trn. |
| Foreign Direct Investment (FDI) | Investment by foreign entity that gives control. | Boosts capital & technology. | FDI in IT sector ₹2 trn. |
| Current Account Balance | Current account surplus/deficit. | Impacts currency value. | Surplus ₹2 trn → ₹ appreciation. |
| GDP Per Capita | GDP ÷ population. | Standard of living indicator. | ₹4.2 lakh per person. |
| Human Development Index (HDI) | Composite of life expectancy, education, income. | Measures overall development. | India HDI 0.645. |
| Poverty Line | Minimum income to meet basic needs. | Guides welfare & policy. | ₹2,000/month for rural families. |
Tip: In TET papers, you’ll often see these terms in statements like “the RBI’s monetary policy has led to a rise in inflation” or “India’s current account deficit widened in Q2‑24”.
3. Worked Example
Example 1 – Calculating GDP (Expenditure Approach)
Given
| Component | Value (₹ in crore) |
|---|---|
| Consumption (C) | 5,00,000 |
| Investment (I) | 70,000 |
| Government Spending (G) | 30,000 |
| Net Exports (X‑M) | 10,000 |
Formula
[ GDP = C + I + G + (X - M) ]
Calculation
[ \begin{align} GDP &= 5,00,000 + 70,000 + 30,000 + 10,000 \ &= 6,30,000\ \text{₹ crore} \end{align} ]
Result: GDP = ₹6,30,000 crore (₹6.3 trn).
Example 2 – Computing Inflation (CPI)
Given
- CPI in Jan‑23 = 210
- CPI in Jan‑24 = 220
Formula
[ \text{Inflation Rate} = \frac{CPI_{t} - CPI_{t-1}}{CPI_{t-1}} \times 100% ]
Calculation
[ \frac{220 - 210}{210} \times 100 = \frac{10}{210} \times 100 \approx 4.76% ]
Result: Inflation ≈ 4.8 % (Jan‑24 vs Jan‑23).
4. Quick Revision Summary (Flash‑card style)
| Term | Key Point |
|---|---|
| GDP | Total value of domestic production. |
| **G |