Economics

36 terms · each links to a full explanation with a worked example and the exam traps

Bank RateThe rate at which the central bank lends to commercial banks without collateral, for medium to long-term or emergency needs — one of RBI's tools for controlling money supply and rates.
Business cycleThe recurring pattern of expansion and recession in an economy's GDP, which drives how equity, bond and real estate returns behave at different points in time.
Contractionary policyGovernment or central bank actions — such as raising interest rates or taxes — used to cool an overheating economy and contain inflation, at a cost to bond and equity valuations.
Cost-push inflationA rise in the general price level caused by higher input costs to producers — wages, raw materials, energy — rather than by demand outrunning supply.
CPIAn index tracking the retail-level prices of a defined basket of goods and services over time — the standard measure of the inflation actually felt by consumers.
CRRThe minimum percentage of a bank's total deposits that it must hold as cash reserves with the central bank, earning no interest — one of RBI's tools for controlling money supply.
Current account deficitThe gap that arises when a country imports more goods and services than it exports, making it a net borrower of foreign currency from the rest of the world.
Demand-pull inflationInflation caused by demand running ahead of the supply available to meet it — too much money chasing too few goods.
Expansionary policyGovernment or central bank actions — such as keeping interest rates low or increasing spending — used to encourage economic activity, which tends to lift equity, bond and real estate values.
FDIForeign capital that comes into a country in active form, where the investing entity participates in decision making and drives the business, as opposed to passive portfolio investment.
Final goodsGoods consumed by participants in the economy rather than used up in further production — only these are counted when GDP is measured by the product method, so nothing is counted twice.
Fiscal deficitThe budgeted excess of the government's expenditure over its revenues in a year, usually stated as a percentage of GDP and bridged by borrowing.
Fiscal deficit and crowding outWhen a large government fiscal deficit, funded through market borrowing, pushes up market interest rates and squeezes out the amount other borrowers — mainly companies — can raise.
Fiscal policyThe government's measures on its own revenues and expenses — taxation and spending — used to influence aggregate demand, savings, investment and overall economic activity.
Fisher effectThe proposition that, other things equal, a rise in expected inflation raises the nominal interest rate — which is why interest rate derivatives are the household sector's instrument for hedging inflation.
Gross Domestic ProductThe market value of all final goods and services produced inside a country's borders in a period, whoever owns the producer — the standard measure of the size and growth of an economy.
Gross National ProductThe market value of goods and services produced by a country's residents wherever in the world they are — GDP measured by nationality rather than by geography.
InflationA sustained general rise in the price level, which erodes what a rupee buys — and the reason a nominal return has to be deflated before it means anything.
Interest rateThe percentage a lender charges a borrower for the use of money for a period of time — the cost of debt to the borrower and the return to the lender, and never a single number for the whole economy.
Leading economic indicatorA measure of economic recovery that improves before the actual economy does, because it reflects expectations for the future rather than current or past activity — and the workbook names the stock market itself as one.
MacroeconomicsThe study of the economy as a whole — the aggregate supply and demand factors such as GDP, unemployment, inflation, savings and investment, and the public policies that move them.
MicroeconomicsThe study of economics at the level of individuals and firms — what people choose to buy at prevailing prices, and how firms set inputs, outputs, prices and output levels in response.
Monetary policyThe central bank's management of money supply and interest rates to promote growth and hold prices stable — expansionary when it wants to push the economy up, contractionary when it wants to cool it.
National savingThe savings of an entire economy, arrived at by adding the savings of its three constituents — personal savings, corporate savings and public savings.
Net Factor Income from AbroadFactor income earned by a country's residents abroad minus factor income earned inside the country by non-residents — the single adjustment that converts GDP into GNP.
Old dependency ratioThe number of elderly citizens a country has relative to its working-age population — projected in the workbook to settle near 23 percent in India by 2036, and the demographic case for retirement planning.
Open Market OperationsRBI's purchases and sales of government securities in the market to adjust rupee liquidity on a durable basis — selling to absorb excess liquidity, buying to release liquidity when conditions are tight.
Per capita incomeNational income divided by total population — a better gauge of living standards than national income alone, because it adjusts for how many people that income is shared across.
Purchasing powerWhat a sum of money can actually buy in goods and services. Inflation reduces it, so the same rupee amount buys less the further in the future it is received.
Real interest rateThe nominal rate adjusted for inflation — what the lender actually gains in purchasing power, and a number that turns negative whenever inflation runs above the coupon.
Repo rateThe rate at which the central bank lends money to banks for a very short term against approved securities — the main lever it pulls to make money cheaper or dearer.
Reverse repoThe transaction where the central bank borrows money from banks against securities, paying interest on it — the mirror image of a repo, where the central bank instead lends.
SLRThe minimum percentage of a bank's total deposits it must hold in cash equivalents such as government securities and gold, rather than as cash — a companion tool to CRR.
Theory of the firmThe microeconomics of how a firm decides its inputs, outputs, prices, production levels, profits and losses — extending individual decision-making up to the level of a business.
Unemployment rateThe share of a country's eligible, willing-to-work population that is unemployed, in percentage terms — a macroeconomic variable that rises in a slowdown and falls in an expansion.
WPIWholesale Price Index — one of the two ways the workbook says inflation is measured, tracking a basket of goods at wholesale prices, as against CPI at the retail level.