Economic Terms – Delhi TET – General Awareness & Current Affairs
(Prepared by: Expert Teacher)
1. Simple Explanation
Economic terms are the “building blocks” of any discussion about a country’s money, production, and welfare.
They help you understand how the economy works, what is happening today, and why policymakers act the way they do.
2. Key Terms & What They Mean
| Term | Short Definition | Why It Matters | Example (India 2023‑24) |
|---|---|---|---|
| Gross Domestic Product (GDP) | Total value of all goods & services produced within a country’s borders in a year. | Measures economic size & growth. | 2023‑24 GDP ≈ ₹280 lakh crore. |
| Gross National Product (GNP) | GDP + value of goods/services produced abroad by a country’s residents – minus foreign production at home. | Shows national income irrespective of location. | GNP > GDP when Indians earn abroad. |
| Consumer Price Index (CPI) | Weighted average of prices of a basket of goods & services bought by households. | Basis of inflation, cost‑of‑living adjustments. | CPI inflation 2023: 4.1 %. |
| Producer Price Index (PPI) | Prices of goods at the wholesale level, before they reach consumers. | Early indicator of inflation. | PPI inflation 2023: 3.8 %. |
| Inflation | Sustained rise in general price level. | Affects purchasing power & cost of living. | 2023 CPI inflation 4.1 %. |
| Deflation | Sustained fall in general price level. | Can signal economic slowdown. | Rare in India; 2024‑25 forecast: 0.5 % deflation. |
| Fiscal Policy | Government’s use of taxation & spending to influence the economy. | Controls deficits, stimulates growth, or cools inflation. | 2024 budget: ₹13.4 trn deficit. |
| Monetary Policy | Central bank’s use of interest rates & money supply to manage inflation & growth. | Sets repo rate, reverse repo, etc. | RBI repo rate: 6.50 % (2024). |
| Exchange Rate | Value of one currency expressed in terms of another. | Affects trade, inflation, foreign investment. | INR/USD ≈ 82.5. |
| Balance of Payments (BoP) | Record of all transactions between a country and rest of world (current + capital). | Shows external economic health. | Current account surplus ₹1.7 trn (2023). |
| Foreign Direct Investment (FDI) | Investment by foreign entities in India’s businesses. | Drives capital inflow, technology, jobs. | FDI 2023: ₹2.2 trn. |
| Capital Account | Part of BoP covering capital transfers & investment. | Indicates long‑term financial flows. | 2023 net capital inflow: ₹0.7 trn. |
| Public Debt | Total debt owed by the government to creditors. | Determines fiscal sustainability. | 2024 debt‑to‑GDP ratio ≈ 68 %. |
| Interest Rate | Cost of borrowing or reward for saving. | Influences investment, consumption, inflation. | RBI policy repo 6.50 %. |
| Liquidity | Ease with which money can be exchanged for goods/services. | High liquidity → easier borrowing, spending. | RBI’s reverse repo rate 2.25 %. |
| Credit | Borrowed money that must be repaid with interest. | Drives spending, investment. | Corporate credit growth 12 % CAGR (2020‑24). |
| Subsidy | Government cash or in‑kind support to reduce costs for producers or consumers. | Affects price, distribution, welfare. | Fuel subsidy: 10 % of total. |
| Tariff | Tax on imports/exports. | Protects domestic industry, raises revenue. | Import duty on solar panels: 5 %. |
| Budget Deficit | Expenditure > Revenue. | Requires borrowing; impacts debt. | 2024 deficit: ₹13.4 trn. |
| Surplus | Revenue > Expenditure. | Allows debt reduction or investment. | 2023 surplus: ₹2.4 trn. |
| Economic Growth Rate | Percentage change in real GDP year‑on‑year. | Indicates health of economy. | 2023 growth: 6.8 %. |
| Unemployment Rate | % of labor force without work but actively seeking. | Social & economic indicator. | 2023 unemployment: 7.8 %. |
| Labor Force Participation Rate (LFPR) | % of working‑age population willing to work. | Measures labor market depth. | 2023 LFPR: 58 %. |
| Human Development Index (HDI) | Composite of life expectancy, education, income. | Gauges overall development. | India HDI 2023: 0.645 (medium). |
| Gross National Income (GNI) | GNP + net income from abroad. | Alternative to GNP for measuring national income. | 2023 GNI: ₹310 lakh crore. |
| Purchasing Power Parity (PPP) | Exchange rate that equalizes purchasing power of different currencies. | Useful for comparing real income / output. | PPP USD/INR ≈ 75. |
3. Worked Example – Calculating GDP (Current Price Method)
Data (India, FY‑2023‑24)
| Component | Value (₹ lakh crore) |
|---|---|
| Consumption (C) | 140 |
| Investment (I) | 60 |
| Government Spending (G) | 30 |
| Net Exports (X – M) | +10 |
GDP (C + I + G + (X – M))
GDP = 140 + 60 + 30 + 10
GDP = ₹ 240 lakh crore
(Actual 2023‑24 GDP ≈ ₹280 lakh crore – the numbers above are simplified for illustration.)
Interpretation
- Consumption dominates GDP (~58 %).
- Net exports are positive, meaning India exports more than it imports.
- A higher investment component indicates a focus on capital formation.