📚 Uttarakhand TET – General Awareness & Current Affairs
Economic Terms – Study Notes
These notes cover the most frequently asked economic terms for the Uttarakhand TET.
Each term is explained simply, the key points are highlighted, a worked example is given, and a quick revision summary is provided for last‑minute review.
1. Simple Explanation of Economic Terms
| Term | What It Means (in Plain Language) |
|---|---|
| Gross Domestic Product (GDP) | Total value of all goods & services produced inside a country in a year. |
| Gross National Product (GNP) | GDP + income earned by citizens abroad – income earned by foreigners in the country. |
| Consumer Price Index (CPI) | Measures change in prices of a fixed basket of goods bought by households. |
| Producer Price Index (PPI) | Measures change in prices received by producers for their goods & services. |
| Inflation | General rise in price levels over time. |
| Deflation | General fall in price levels over time. |
| Fiscal Policy | Government’s use of taxes & spending to influence the economy. |
| Monetary Policy | Central bank’s control of money supply & interest rates. |
| Interest Rate | Cost of borrowing money, usually expressed as a percentage. |
| Exchange Rate | Value of one currency in terms of another. |
| Foreign Direct Investment (FDI) | Investment by a foreign company in a domestic business. |
| Trade Deficit / Surplus | Shortfall (deficit) or excess (surplus) of exports over imports. |
| Supply & Demand | Fundamental economic forces determining price & quantity. |
| Elasticity | How much quantity demanded/supplied changes when price changes. |
| Opportunity Cost | Value of the best alternative foregone when a choice is made. |
| Comparative Advantage | When a country can produce a good at lower relative opportunity cost than another. |
2. Key Points for Each Term
| Term | Key Points |
|---|---|
| GDP | • Calculated via production, income, or expenditure approach. • Growth rate indicates economic health. |
| GNP | • Reflects national income, not just domestic production. • Useful for assessing citizens’ global earning power. |
| CPI | • Base year typically 100. • Basis for cost‑of‑living adjustments (e.g., pensions). |
| PPI | • Indicates inflation pressure at the production stage. • Often precedes CPI changes. |
| Inflation | • Measured by CPI or PPI. • Causes include demand‑pull, cost‑push, and built‑in inflation. |
| Deflation | • Rare, can signal recession. • Often linked to falling demand. |
| Fiscal Policy | • Expansionary: lower taxes / higher spending. • Contractionary: higher taxes / lower spending. |
| Monetary Policy | • Expansionary: lower interest rates, higher money supply. • Contractionary: higher interest rates, lower money supply. |
| Interest Rate | • Influences borrowing, saving, investment. • Central bank policy rate is the key lever. |
| Exchange Rate | • Fixed vs. floating regimes. • Affects trade competitiveness. |
| FDI | • Brings capital, technology, expertise. • Stimulates employment & growth. |
| Trade Deficit/Surplus | • A deficit shows more imports than exports; surplus shows the opposite. • Balance of payments includes current & capital account. |
| Supply & Demand | • Market equilibrium price = where supply = demand. • Shifts in curves cause price & quantity changes. |
| Elasticity | • Elasticity >1: elastic; <1: inelastic. • Elastic demand → price cuts boost revenue. |
| Opportunity Cost | • Central to decision‑making. • Helps prioritize scarce resources. |
| Comparative Advantage | • Basis for international trade. • Even if one country is less efficient overall, it can still benefit from trade. |
3. Worked Example – Calculating Inflation (CPI)
Scenario:
Base year (2019) CPI = 100.
Current year (2024) CPI = 130.
Question: What is the inflation rate over these 5 years?
Steps:
-
Formula:
[ \text{Inflation Rate} = \frac{CPI_{\text{current}} - CPI_{\text{base}}}{CPI_{\text{base}}} \times 100% ] -
Insert values:
[ \frac{130 - 100}{100} \times 100% = \frac{30}{100} \times 100% = 30% ] -
Result:
30 % cumulative inflation over 5 years.
Average annual inflation ≈ 30 % ÷ 5 = 6 % per year (simple average; actual CAGR ≈ 5.5 %).
Interpretation: Prices increased by 30 % relative to the base year, indicating moderate inflation.
4. Quick Revision Summary
| Concept | Remember | Quick Tip |
|---|---|---|
| GDP vs GNP | GDP = domestic, GNP = domestic + abroad earnings | “GNP = GDP + nationals abroad” |
| CPI | Measures consumer price changes | Base year 100, 130=30 % inflation |
| Inflation | Rise in price level | CPI ↑, PPI ↑ |