RBSE VU Economics flashcards

32 cards. Read the term and the definition here. The deck at the top of this page is optional.

Circular flow of income

The continuous loop in which households supply factors of production to firms and spend the factor incomes so received on the firms' output, making income, expenditure and output equal in a two-sector economy.

Gross National Product

The value of all final goods and services produced by the residents of a country in a year, equal to gross domestic product plus net factor income from abroad.

GDP deflator

Nominal GDP divided by real GDP and multiplied by 100. It is the broadest available price index for an economy because it covers all goods and services included in GDP.

Value added method

A method of measuring national income that sums gross value added at market prices across all producing sectors, thereby avoiding double counting by excluding intermediate consumption.

Money multiplier

The ratio of the money supply to the monetary base. It is larger when banks hold smaller excess reserves and the public holds less currency relative to demand deposits.

Cash Reserve Ratio

The proportion of a bank's net demand and time liabilities that must be maintained as cash balances with the Reserve Bank of India, used as a quantitative tool of credit control.

M1 money supply

The narrowest measure of money: currency held by the public plus demand deposits with commercial banks plus other deposits held with the Reserve Bank of India.

Open market operations

The buying and selling of government securities by the central bank in the open market to inject or absorb liquidity and thereby alter commercial bank reserves.

Marginal propensity to consume

The fraction of an additional unit of disposable income that households spend on consumption, calculated as change in consumption divided by change in income and lying between zero and one.

Investment multiplier

The ratio of the change in equilibrium income to the change in autonomous investment that caused it; equal to one divided by one minus the marginal propensity to consume.

Deflationary gap

The shortfall of aggregate demand below the level required to buy the full-employment output of the economy, resulting in unemployment and downward pressure on prices.

Paradox of thrift

The outcome in which an attempt by all households to save more at a given income reduces aggregate demand and equilibrium income, leaving total saving little changed.

Revenue deficit

Revenue expenditure minus revenue receipts of the government. It measures the borrowing used to finance current spending that creates no assets.

Fiscal deficit

Total government expenditure minus total receipts other than borrowings. It measures the total borrowing requirement of the government during a financial year.

Primary deficit

Fiscal deficit minus interest payments on past debt. It shows how much of current borrowing is unconnected with the burden of earlier liabilities.

Capital expenditure

Government spending that creates or increases physical or financial assets, or reduces a liability, such as building roads, buying machinery or repaying a loan.

Current account of BoP

The record of a country's trade in goods and services, investment income and unilateral transfers. A deficit on it must be financed by capital inflows or reserve loss.

Managed floating exchange rate

A regime in which market forces largely determine the exchange rate but the central bank intervenes occasionally to curb sharp volatility. India has followed it since 1993.

Devaluation

A deliberate official reduction in a currency's fixed parity, which makes exports cheaper in foreign currency and imports more expensive in domestic currency.

Real exchange rate

The nominal exchange rate adjusted for differences in price levels between countries. It measures the true competitiveness of a country's goods in international trade.

Import substitution

A trade strategy that replaces imported goods with domestically produced substitutes using tariffs, quotas and industrial licensing, aimed at building self-reliance and domestic industry.

Mahalanobis strategy

The approach of India's Second Five Year Plan (1956–61) that prioritised heavy and capital goods industries under public-sector leadership and protected domestic markets.

New Economic Policy 1991

India's reform package combining liberalisation through delicensing, privatisation through disinvestment, and globalisation through lower tariffs and greater foreign investment, alongside rupee devaluation.

Disinvestment

The sale by the government of a part of its equity holding in public sector enterprises to private investors, used to raise resources and improve corporate efficiency.

Disguised unemployment

A situation where more workers are engaged in a task than are actually needed, so that removing some workers leaves total output unchanged; common on Indian family farms.

Informal worker

A worker without a written contract, social security or job protection, whether employed in formal or informal enterprises; such workers form over ninety percent of India's workforce.

Demographic dividend

The growth potential that arises when the working-age population grows faster than the dependent population; it yields benefits only if enough productive, skilled jobs exist.

Human capital formation

The process of raising a population's productive capacity by investing in education, training, health care and nutrition, thereby increasing future income and growth.

One-child policy

China's restriction from 1979 to 2015 limiting most urban couples to one child, which slowed population growth but accelerated population ageing and labour force decline.

Special Economic Zones

Designated areas offering tax holidays, duty-free imports and simplified regulation, used by China after 1978 to attract foreign investment and promote export-oriented manufacturing.

Township and village enterprises

Rural collective firms that expanded in China after the 1978 reforms, absorbing surplus farm labour and producing consumer goods and light industrial output.

Human Development Index

A UNDP composite index combining life expectancy, education and per capita income. China ranks well above India, which ranks above Pakistan.