Economic Terms – Study Notes for SI (Dadra & Nagar Haveli & Daman & Diu)
(General Awareness & Current Affairs)
Why it matters
The SI exam tests a candidate’s grasp of basic economic concepts, which are frequently asked in interviews, viva, and written tests. Understanding these terms will help you analyze current affairs, interpret RBI announcements, and answer questions on the national economic situation.
1. Simple Explanation
| Term | Short Definition | Why it matters |
|---|---|---|
| GDP (Gross Domestic Product) | Total value of all final goods & services produced within the country in a year. | Main indicator of economic size & health. |
| GNP (Gross National Product) | Value of all final goods & services produced by residents (including abroad). | Shows national economic power, including overseas earnings. |
| Net National Income (NNI) | GNP – depreciation of capital. | Indicates income available for consumption & investment. |
| Inflation | Sustained rise in general price level. | Affects purchasing power & cost of living. |
| Deflation | Sustained fall in general price level. | Indicates falling demand & potential recession. |
| Stagflation | Simultaneous stagnation & inflation. | Hard to manage with conventional policy tools. |
| Monetary Policy | RBI’s actions (interest rates, reserve requirements, open‑market operations) to control money supply & inflation. | Influences credit, investment, and employment. |
| Fiscal Policy | Government’s use of taxation & spending to influence the economy. | Determines budget deficit, public debt, and fiscal sustainability. |
| RBI (Reserve Bank of India) | Central bank of India. | Implements monetary policy, regulates banks, issues currency. |
| CPI (Consumer Price Index) | Basket‑based measure of price changes for consumer goods & services. | Main inflation gauge. |
| PPI (Producer Price Index) | Prices received by producers for goods & services. | Early indicator of inflation. |
| Balance of Payments (BOP) | Record of all transactions with the rest of the world (Current & Capital Accounts). | Measures external economic health. |
| Current Account | Trade in goods & services, income, and unilateral transfers. | Indicates competitiveness & foreign income flows. |
| Capital Account | Capital transfers & acquisition/ disposal of non‑financial assets. | Shows foreign investment flows. |
| Foreign Direct Investment (FDI) | Investment in a foreign enterprise that gives a controlling stake. | Drives technology, employment & GDP growth. |
| Foreign Exchange Reserves | Foreign currency holdings of the RBI. | Helps manage exchange rate & external shocks. |
| Debt‑to‑GDP Ratio | Total public debt ÷ GDP. | Indicates debt sustainability. |
| Compound Annual Growth Rate (CAGR) | Average annual growth rate over a period. | Useful for comparing growth of sectors or investments. |
2. Key Points (Bullet‑Style)
- GDP vs. GNP – GDP counts location, GNP counts ownership.
- CPI is the most cited inflation figure; PPI often precedes CPI changes.
- Monetary policy is mainly driven by the Monetary Policy Committee (MPC); key tools: repo rate, reverse repo, CRR, SLR.
- Fiscal policy decisions are made in the Union Budget; key items: tax rates, subsidies, public spending.
- Balance of Payments is split into Current & Capital Accounts; a deficit in the Current Account is financed by a surplus in Capital Account.
- FDI inflows boost Gross Value Added (GVA) in the host country; restrictions may apply (e.g., “automatic route” vs. “government route”).
- Inflation is measured in annual terms but can also be quarterly to observe trends.
- Public debt is tracked by Finance Ministry; market interest rates on government bonds reflect debt sustainability.
- CAGR ≈ ((\text{Final Value}/\text{Initial Value})^{1/n} - 1) where n = number of years.
3. Worked Example
Calculating GDP (Expenditure Approach)
Given:
- Consumption (C) = ₹30,000 crore
- Investment (I) = ₹8,000 crore
- Government Spending (G) = ₹5,000 crore
- Net Exports (X – M) = ₹(2,000) crore (i.e., imports > exports by ₹2,000 crore)
Formula (Expenditure Approach): [ GDP = C + I + G + (X - M) ]
Calculation: [ GDP = 30,000 + 8,000 + 5,000 - 2,000 = 41,000 \text{ crore} ]
Interpretation:
- GDP = ₹41,000 crore for the year.
- If this represents a 5% growth from the previous year, you can compute the previous year