Economic terms

Economic Terms – Study Notes for Meghalaya Patwari / Lekhpal

Why you need these notes
In your exams you’ll often see questions that ask you to explain or use basic economic words.
These notes give you the shortest explanation, a quick analogy, and a tiny example so you can remember them easily.

1. Economy

• What it is – All the buying and selling that happen in a country.
• Analogy – Think of a big market where everyone trades goods and money.
• Example – When people buy rice in Shillong, that trade is part of the Meghalaya economy.

2. Growth

• What it is – When the total amount of goods and services produced goes up.
• Analogy – A plant that gets taller each year.
• Example – If the number of farms in a district increases from 200 to 250, the local economy is growing.

3. Inflation

• What it is – Prices of goods and services rising over time.
• Analogy – A balloon that keeps getting bigger.
• Example – If a packet of rice costs ₹20 today and ₹22 next month, that’s inflation.

4. Gross Domestic Product (GDP)

• What it is – Total value of everything produced inside a country in a year.
• Analogy – Adding up all the money spent on everything made in a house.
• Example – If Meghalaya produces 1 billion rupees worth of goods in a year, that is its GDP.

5. Gross National Product (GNP)

• What it is – Total value produced by a country’s people, whether inside or outside the country.
• Analogy – Your earnings from jobs at home and abroad, summed together.
• Example – A Meghalaya farmer who sells his produce in Mumbai adds to GNP, even though the sale happens outside Meghalaya.

6. Consumer Price Index (CPI)

• What it is – A list of common items that people buy, used to see how prices change.
• Analogy – A price tag that tracks how much a basket of groceries costs over time.
• Example – If the CPI shows the basket of food went from ₹500 to ₹520, that means a 4% rise in food prices.

7. Supply and Demand

• Supply – How much of something is available.
• Demand – How much people want it.
• Analogy – If you have 10 mangoes (supply) and 15 friends want them (demand), mangoes will be scarce.
• Example – When a new mobile phone launches, its price may rise because many people want it but few phones are available.

8. Fiscal Policy

• What it is – How a government spends money and collects taxes.
• Analogy – A family budget: deciding how much to spend on groceries, rent, and saving.
• Example – If the state government builds a new road, that’s fiscal policy.

9. Monetary Policy

• What it is – How a country’s central bank controls the amount of money in circulation.
• Analogy – The bank’s “watering can” – give more water (money) or less water to keep plants (economy) healthy.
• Example – The RBI lowering interest rates so people can borrow cheaper and spend more.

10. Interest Rate

• What it is – The extra money you pay when you borrow money.
• Analogy – When you borrow a book and you need to return it a little later – that’s the “extra” for borrowing.
• Example – If a loan of ₹10,000 has a 5% interest rate, you’ll pay ₹500 extra.

11. Budget

• What it is – A plan that shows how much money will be earned and spent.
• Analogy – A grocery list that tells you how much you can spend on each item.
• Example – The state budget shows how much money will go to schools, roads, and health.

12. Debt

• What it is – Money that is owed to someone else.
• Analogy – Borrowing a cup of tea from a neighbour and promising to return it later.
• Example – If the government borrows ₹1 billion from banks to build a bridge, that amount is debt.

13. Employment

• What it is – Jobs that people have.
• Analogy – Seats on a bus that are filled by passengers.
• Example – When a new factory hires 50 workers, employment in the area rises.

14. Unemployment

• What it is – People who want a job but can’t find one.
• Analogy – Empty seats on a bus that no one is filling.
• Example – If 10 people are looking for jobs in a village but there are no openings, unemployment is high.

15. Exchange Rate

• What it is – Value of one currency compared to another.
• Analogy – Swapping a mango for a banana; the ratio tells how many bananas you get for one mango.
• Example – If 1 Indian rupee = 0.012 US dollars, that’s the exchange rate.

16. Import

• What it is – Bringing goods from another country into your own.
• Analogy – Buying a toy from a shop in the next town.
• Example –