Economic Terms – Study Notes for SBI Clerk
(General Awareness & Current Affairs – Economic Terms)
Why these notes?
The SBI Clerk exam tests knowledge of basic economic concepts and the ability to interpret data. Understanding the definitions, formulae, and tricky nuances of key terms will help you score high in the General Awareness section.
1. Core Economic Terminology
| Term | Definition (Short) | Significance for Exams |
|---|---|---|
| Gross Domestic Product (GDP) | Total value of all final goods & services produced within a country’s borders in a given period. | Basic indicator of economic health. |
| Gross National Product (GNP) | GDP + net factor income from abroad (income earned by residents abroad – income earned by foreigners domestically). | Shows national income beyond borders. |
| Gross National Income (GNI) | GNP + net unilateral transfers (remittances, aid). | Equivalent to GNP for most countries. |
| Net National Product (NNP) | GNI – depreciation of capital (wear‑and‑tear). | Shows productive capacity after accounting for capital wear. |
| Inflation / Deflation | Sustained rise (or fall) in the general price level. | Core to CPI, PPI, and inflation forecasts. |
| Consumer Price Index (CPI) | Weighted average of price changes of a basket of consumer goods & services. | Measures consumer inflation. |
| Producer Price Index (PPI) | Price changes at the wholesale level (input prices). | Signals future CPI movements. |
| Consumer Price Index – HICP | Harmonised CPI used in EU. | Useful for comparing inflation across EU. |
| Price‑Level Index | Any index that measures price changes (e.g., CPI, PPI). | Basis for real‑vs‑nominal calculations. |
| Depreciation / Wear & Tear | Reduction in value of capital goods. | Appears in NNP calculation. |
| Real vs. Nominal | Real: price‑adjusted; Nominal: current prices. | Key to understanding GDP real growth. |
| Purchasing Power Parity (PPP) | Exchange rate that equalises the price of identical goods in different countries. | Important for cost‑of‑living comparisons. |
| Exchange Rate (Spot / Forward) | Price of one currency in terms of another. | Impacts import/export competitiveness. |
| Current Account Balance | Trade balance + net income + net transfers. | Indicator of overall external balance. |
| Capital Account | Movements of capital (FDI, portfolio) & reserve changes. | Complements current account. |
| Fiscal Policy | Government’s use of taxation & spending. | Determines aggregate demand. |
| Monetary Policy | Central bank’s regulation of money supply & interest rates. | Controls inflation & liquidity. |
| Liquidity | Availability of cash or easily liquidated assets. | Indicator of short‑term solvency. |
| Credit | Loan or debt that increases money supply. | Drives consumption & investment. |
| Interest Rate | Cost of borrowing (nominal & real). | Central to monetary policy decisions. |
| Banking System | Commercial banks, NBFCs, RBI. | Core to financial stability. |
| Inflation Target | Central bank’s goal (e.g., RBI aims 4 % ± 2 %). | Influences policy tools. |
| **Reserve Bank of India (RBI) | Central bank of India. | Sets policy rates, regulates money supply. |
| Fiscal Deficit | Expenditure > Revenue (excluding debt). | Indicator of fiscal health. |
| Budget Deficit | Similar to fiscal deficit but includes capital spending. | Appears in annual budget reports. |
| Public Debt | Total debt owed by the government. | Impacts fiscal sustainability. |
| Foreign Direct Investment (FDI) | Investment by a company in another country’s assets. | Drives growth & employment. |
| Current Account Surplus/Deficit | Current account > 0 (surplus) / < 0 (deficit). | Signifies net inflows/outflows. |
| Debt‑to‑GDP Ratio | Total debt / GDP. | Measures debt sustainability. |
| GDP Deflator | (Nominal GDP / Real GDP) × 100. | Broad measure of inflation. |
| Real GDP Growth | GDP growth adjusted for inflation. | True growth measure. |
| Unemployment Rate | Unemployed / Labor force × 100. | Macro‑economic health indicator. |
| Labor Force Participation Rate | Labor force / Working‑age population × 100. | Indicates workforce engagement. |
| Human Development Index (HDI) | Composite measure of life expectancy, education, income. | Global benchmark for development. |
| Human Development Index – Gender Gap Index (GDI) | Gender‑specific HDI. | Shows gender disparities. |
2. Derivations & Important Formulae
2.1 GDP & Real GDP
- Nominal GDP
$$\text{Nominal GDP} = \sum_{i} (P_{i,t}^{\text{current}} \times Q_{i,t}^{\text{current}})$$
where (P_{i,t}^{\text{current}}) = price of good (i) in year (t), (Q_{