RBSE VU Economics key terms

The continuous movement of production, income and expenditure between households and firms in an economy. It shows that output, income and spending are three ways of measuring the same national income.

The market value of all final goods and services produced within a country's domestic territory during an accounting year. It is a gross measure, so depreciation is not deducted, and second-hand sales are excluded.

GDP plus net factor income from abroad. It values the final output produced by a country's normal residents, wherever in the world that production physically takes place.

GNP at market price minus depreciation and net indirect taxes. It equals the sum of rent, wages, interest and profit earned by normal residents of a country in a year, and is commonly called national income.

Indirect taxes minus subsidies. Adding net indirect taxes to a factor-cost figure converts it into a market-price figure, because market prices include taxes but are reduced by subsidies.

GDP measured at constant base-year prices, so that year-to-year changes reflect only changes in physical output. It allows growth to be compared without distortion from price movements.

The ratio of nominal GDP to real GDP, multiplied by 100. It is a broad price index covering every good and service in GDP, used to remove inflation from nominal output.

The fall in value of fixed capital assets caused by normal wear and tear, obsolescence or accidental damage during production. Deducting it from a gross measure gives the corresponding net measure.

The stock of money held by the public at a point of time. In India, M1 is currency held by the public plus demand deposits with banks plus other deposits with the RBI.

The process through which commercial banks expand total deposits, and hence the money supply, by lending out most of each new deposit while retaining only the required reserves.

The share of net demand and time liabilities that commercial banks must hold as balances with the Reserve Bank of India. Banks earn no interest on these balances, so a higher ratio curbs lending.

The rate at which the Reserve Bank of India lends short-term funds to commercial banks against approved securities. Raising it makes credit costlier and is a contractionary monetary measure.

The buying or selling of government securities by the central bank in the open market. Purchases add reserves to the banking system and expand credit; sales absorb reserves and contract credit.

The relationship between household consumption expenditure and income, usually written C = a + bY, where a is autonomous consumption and b is the marginal propensity to consume.

The fraction of each additional rupee of income that households spend on consumption. It equals the change in consumption divided by the change in income and determines the size of the multiplier.

The number by which a change in autonomous investment is multiplied to obtain the resulting change in equilibrium income. It equals one divided by one minus the marginal propensity to consume.

A situation where aggregate demand falls short of the level needed to maintain full-employment equilibrium. It produces a deflationary gap, unemployment and idle capacity, and calls for expansionary fiscal or monetary policy.

A situation where aggregate demand exceeds the output the economy can produce at full employment. The inflationary gap shows up mainly in rising prices and shortages rather than in extra real output.

Government receipts that neither create a liability nor reduce assets, such as tax revenue and non-tax revenue from interest, dividends and fees. They are non-debt creating and recurring in nature.

Government receipts that either create a liability, such as borrowing, or reduce assets, such as disinvestment. They are largely used to finance capital expenditure and repayment of past debt.

Total government expenditure minus total receipts other than borrowing. It measures the government's borrowing requirement for the year and is financed from the RBI, banks, the public or foreign sources.

Fiscal deficit minus interest payments. Because it strips out the burden of past debt, it indicates how much fresh borrowing is needed for current spending other than debt servicing.

A systematic record of all economic transactions between the normal residents of a country and the rest of the world during a year. It is conventionally grouped into the current and capital accounts.

The part of the balance of payments recording trade in goods and services plus net factor income and unilateral transfers. Its balance shows whether a country is a net lender or net borrower.

A system in which the exchange rate is largely determined by market demand and supply, but the central bank intervenes periodically to prevent sharp or disruptive movements in the currency.

A fall in the value of a currency in terms of foreign currencies under a flexible exchange rate system. It makes exports cheaper abroad and imports more expensive at home.

A deliberate official reduction of a currency's exchange rate under a fixed or pegged system, as opposed to market-driven depreciation. It is used to correct a balance of payments deficit.

A trade and industrial strategy that promotes domestic production of goods previously imported, behind tariff and quota protection, to save foreign exchange and build domestic industrial capacity.

The removal or relaxation of government controls over industry, trade, investment and prices. In India it began in 1991 through deregulation, reduced licensing and lower tariffs and taxes.

The transfer of ownership and management of public sector enterprises to the private sector, either wholly by sale of the enterprise or partly through disinvestment of government equity.

The integration of a national economy with the world economy through freer movement of goods, services, capital and technology. In India it meant lower trade barriers and greater foreign investment.

The international body, set up in 1995 in place of GATT, that frames and enforces rules for trade in goods and services and settles disputes between member countries.

The sale of a part of government equity in a public sector enterprise to private investors. In India it is a partial route to privatisation, aimed at raising resources and improving efficiency.

A level of consumption expenditure, fixed separately for rural and urban areas, regarded as necessary to satisfy basic food and non-food needs. Households spending below it are counted as poor.

The process of building people's skills, knowledge and health through education, training and medical care. Such spending raises productivity and is treated as investment in people rather than mere consumption.

The economic advantage a country gains when its working-age population grows faster than its dependent population. It can raise savings and output per head, but only if enough productive jobs exist.

Development that meets the needs of the present without compromising the ability of future generations to meet their own needs. It requires conserving natural resources and limiting pollution and waste.

The distribution of a country's working population across agriculture, industry and services. India's structure has stayed agriculture-heavy, whereas China moved far more workers into industry and services.

A composite measure combining life expectancy, education and per capita income into a single score between 0 and 1, used to compare development levels across countries.

An economy in which private enterprise and markets coexist with public sector production and government planning. India adopted this model in 1947 and formalised it through successive Five Year Plans.