Baiscs Of Economics Flashcards
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3
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What is Fixed Capital? Give examples.
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Fixed capital represents long-term assets like buildings, machinery, and equipment, which are used for sustained operations over an extended period and provide benefits over multiple production cycles. Examples include a farmer’s plough and a computer.
4
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What is Working Capital? Give examples.
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Working capital covers short-term financial needs for day-to-day operations. It includes raw materials consumed within a single production cycle, like petrol or yarn.
5
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Which economic sector includes the storage of agricultural produce in India?
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The Tertiary or service sector. This sector provides support services like transportation, storage, marketing, and sales.
6
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Which economic sector does Dairy belong to?
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The Primary sector, as it involves the utilization of earth’s resources.
7
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As of 2023-24, what is the approximate contribution of the Agriculture sector (Agriculture, forestry & fishing) to India’s Gross Value Added (GVA) at current prices?
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Approximately 17.24%.
8
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As of 2023-24, what is the approximate contribution of the Services sector to India’s GVA at current prices?
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Approximately 53.42%.
9
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What does ‘Beta’ measure in the context of stocks?
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Beta measures a stock’s price fluctuations relative to changes in the overall stock market. A beta above 1 indicates higher volatility than the market, while below 1 indicates lower volatility.
10
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What are Intangible Assets? Give examples.
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Assets that are not physical in nature. Examples include goodwill, brand recognition, intellectual property (patents, trademarks, copyrights), and mailing lists. Inventory is a tangible asset, not intangible.
11
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How has India performed in intangible investments recently?
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India recorded the fastest growth in intangible investments among major global economies from 2011-2020. Key drivers include software, data, new financial products, and brand investment.
12
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What constitutes the ‘Real Sector’ of an economy according to the document?
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Enterprises (non-financial corporations), households, and non-profit institutions serving households involved in the production of market goods and non-financial services.
13
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What is the potential impact of a ‘Tight Monetary Policy’ by the US Federal Reserve on India?
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It can lead to increased US yields, a stronger dollar, and potentially significant capital flight from emerging markets like India as Foreign Portfolio Investors (FPIs) move towards safer US assets like Treasury bonds.
14
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What is the potential consequence of capital flight for the Indian Rupee?
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Capital flight can lead to depreciation pressures on the rupee. Rupee depreciation decreases the value of foreign investments in dollar terms, potentially triggering further fund outflows.
15
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How has the Indian Rupee performed recently (as of Feb 2025)?
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The rupee experienced significant depreciation, breaching ₹87 per USD, attributed to global uncertainties, trade deficits, and fiscal challenges.
16
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How does rupee depreciation affect firms with External Commercial Borrowings (ECBs)?
A
It increases the currency risk associated with ECBs, especially foreign currency denominated ones. Borrowers have to pay back more in local currency terms, increasing debt-servicing costs.
17
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What is the trend in interest rates on ECBs for Indian companies as of late 2024?
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Interest rates on ECBs showed a declining trend, reducing borrowing costs. The overall cost fell to 5.8% in November 2024.
18
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What is Deficit Financing?
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Generating funds to finance a government budget deficit (excess of expenditure over revenue), often through borrowing from the public (selling bonds) or printing new money.
19
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Which method of deficit financing is considered most inflationary?
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Printing new currency notes, as it increases the money supply without a corresponding increase in goods and services, leading to inflationary pressures.
20
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What is India’s targeted fiscal deficit for 2024-25?
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4.9% of GDP, lower than the 5.6% actual fiscal deficit in 2023-24.
21
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What is ‘Devaluation’ in a fixed exchange rate system?
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A government action that increases the exchange rate, making the domestic currency cheaper relative to foreign currencies.
22
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What is ‘Revaluation’ in a fixed exchange rate system?
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A government action that decreases the exchange rate, making the domestic currency costlier relative to foreign currencies.
23
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What are the expected effects of Devaluation on trade?
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It makes exports relatively cheaper for foreigners and imports relatively more expensive for domestic consumers, potentially improving the competitiveness of domestic exports. Its effect on the trade balance can be complex.
24
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What does a bond’s ‘Yield’ refer to?
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The expected earnings generated on a fixed-income investment over time, expressed as a percentage or interest rate.
25
What factors influence the yield/price of Government Securities (G-Secs) in India?
Level/changes in domestic interest rates, inflation expectations, market liquidity, RBI policy actions (Repo Rate, CRR, OMOs), developments in other markets (money, forex, credit, commodity), and international bond markets (especially US Treasuries).
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What was the trend in India's 10-year G-Sec yield as of late 2024?
The yield stood around 6.79%, reflecting investor confidence and RBI's balanced monetary policy. However, the narrowing spread between Indian and US bond yields made Indian debt less attractive to FPIs.
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How does the price of substitute goods affect demand for a good?
When the price of a substitute falls, demand for the original good declines [source: 84]. When the substitute's price rises, demand for the original good increases [source: 84]. E.g., if coffee prices fall, demand for tea might decrease [source: 85].
29
How does the price of complementary goods affect demand for a good?
When the price of a complement falls, demand for the original good increases [source: 87]. E.g., if milk prices fall, demand for sugar might increase as people consume more milk [source: 88, 89].
30
What is an Inferior Good?
A good whose demand drops when people's incomes rise [source: 90]. Consumers tend to buy more costly substitutes as their income and the economy improve [source: 91].
31
What is a common rule of thumb definition for a Recession?
Two consecutive quarters of decline in the Gross Domestic Product (GDP) [source: 93]. Recessions typically involve declines in economic output, consumer demand, and employment [source: 94].
32
How can government expenditure help counter a recession according to the document?
Increasing expenditure on public projects can increase the money supply for investment, helping to counter the recession [source: 95].
33
What is Foreign Direct Investment (FDI)?
Investment via capital instruments by a non-resident in an unlisted Indian company, or ≥10% of the post-issue paid-up equity capital (fully diluted basis) of a listed Indian company [source: 96]. It's a major source of non-debt financial resources [source: 98].
34
Why does the Indian government aim to attract FDI?
To supplement domestic capital, technology, and skills for accelerated economic growth and development [source: 100]. FDI brings long-term sustainable capital, technology transfer, innovation, competition, and employment creation [source: 99].
35
What was the trend in India's Net FDI for April 2024–January 2025 compared to the previous year?
Net FDI saw a significant decline to $1.4 billion from $11.5 billion year-on-year, mainly due to increased repatriation/disinvestment and higher outward FDI by Indian firms, despite strong gross FDI inflows.
36
What key difference exists between WPI and CPI calculation?
WPI measures price changes for goods at the wholesale level only and does not include services [source: 103, 108]. CPI measures price changes for both goods and services at the retail level [source: 103, 106].
37
Which index does the RBI use as the key measure of inflation (since April 2014)?
Consumer Price Index (CPI) [source: 105].
38
What is the approximate weightage of food items in CPI vs WPI in India according to the document?
Food weightage in CPI is close to 50% [source: 101], while in WPI it's around 40% [source: 102]. (Note: More recent sources might show slightly different weights).
39
What was the main objective of India's Second Five-Year Plan?
Rapid industrialisation with particular emphasis on developing basic and heavy industries [source: 109].
40
What was a key highlight of India's Fourth Five-Year Plan regarding social equality?
Reduction of concentration of incomes, wealth, and economic power to achieve social equality and justice [source: 110]. Nationalisation of 14 banks also occurred during this plan [source: 112].
41
What were the aims of India's Fifth Five-Year Plan?
Removal of poverty and achievement of self-reliance [source: 111].
42
What is Purchasing Power Parity (PPP)?
The exchange rate at which one country's currency would need to be converted into another's to buy the same amount of goods and services in each country [source: 114]. It helps compare economic production and living standards [source: 116].
43
What is India's approximate global rank by GDP (PPP) as of 2025 estimates?
3rd largest economy globally by GDP (PPP).
44
What was a characteristic of Land Ceiling laws in India regarding state variation?
Ceilings on land holdings varied from state to state as land is a state subject, and each state enacted its own laws [source: 118, 119].
45
What is a major contemporary issue regarding land laws in India?
Land governance is fragmented across numerous state and central laws, leading to conflicts, disputes, and delays. Issues also persist with the digitization of land records and clear titling [source: Land Reforms in India- Explained Pointwise - ForumIAS community].
46
Define Opportunity Cost. Give an example from the text.
The potential benefits lost when choosing one alternative over another [source: 122]. Example: Giving up going out to play to study for a test to get good marks [source: 123]. The cost of free public services is transferred to the tax-paying public [source: 124].
47
Differentiate between Economic Growth and Economic Development.
Economic growth is the increase in a country's real national and per capita income over time [source: 126]. Economic development is broader, including sustained improvement in material well-being and social, cultural, political changes alongside income growth [source: 127, 128]. Higher GNP doesn't mean development if poverty/unemployment rises [source: 129].
48
What is Human Capital Formation?
The process of developing and increasing the number of people with skills, education, and experience critical for a country's economic and political development [source: 130, 132]. It's an investment in people [source: 133].
49
What was India's rank in the Human Capital Index (HCI) 2020?
India ranked 116th out of 174 countries with a score of 0.49.
50
What is the Capital-Output Ratio (COR)? What does a high COR indicate?
COR is the amount of capital needed to produce one unit of output [source: 134]. A high COR suggests lower efficiency, possibly due to poor technology or management, meaning output may not grow significantly even with high savings [source: 135, 136].
51
What is the recent trend in India's Incremental Capital-Output Ratio (ICOR) as per a 2023 report?
ICOR, measuring additional capital for 1% higher output, has decreased significantly, indicating greater capital efficiency. It stood at 3.5 in FY22 compared to 7.5 in FY12.
52
What is the Capital Adequacy Ratio (CAR)?
The ratio of a bank's capital (own funds) to its risk-weighted assets, maintained to absorb potential losses and prevent insolvency [source: 137].
53
What CAR are Indian scheduled commercial banks required to maintain as per RBI norms mentioned in the text?
9%, while public sector banks were emphasized to maintain 12% [source: 138]. (Note: Specific requirements might be updated; Basel III standard is 8% [source: 138])
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55
According to the text, which items are not subject to GST?
Cereal grains, cooked eggs, and newspapers [source: 140]. (Note: GST exemptions and rates can change; always refer to the latest official notifications).
56
What was the purpose of introducing GST in India?
To create a common market with common tax rates/procedures, remove economic barriers, mitigate cascading tax effects, improve competitiveness, and enhance business liquidity [source: 141, 142].
57
Which body compiles the Consumer Price Index for Industrial Workers (CPI-IW)?
The Labour Bureau, an attached office of the Ministry of Labour & Employment [source: 143].
58
What is the base year for CPI-IW mentioned in the document?
2016 [source: 144].
59
What was the All-India CPI-IW figure for July 2024, and what was the year-on-year inflation?
The index stood at 142.7 (Base 2016=100) [source: Consumer Price Index for Industrial Workers (2016=100) – July, 2024 - PIB]. Year-on-year inflation moderated to 2.15% in July 2024 [source: Consumer Price Index for Industrial Workers (2016=100) – July, 2024 - PIB].
60
Which body releases the general Consumer Price Index (CPI)? What is its base year mentioned in the text?
National Statistical Office (NSO) [source: 146]. Base year mentioned is 2012 [source: 146].
61
What is Real Gross Domestic Product (GDP)?
An inflation-adjusted measure of the value of all goods and services produced in a given year [source: 147].
62
What is the difference between GDP at Market Prices and Real GDP regarding taxes/subsidies?
GDP at market prices includes indirect taxes but excludes subsidies [source: 149]. Real GDP is adjusted for inflation [source: 147].
63
What was India's estimated Real GDP growth for 2024-25 as per MoSPI estimates cited in Feb 2025?
Expected Real GDP growth was 6.5% for 2024-25 [source: India's real GDP grew 6.2% in Q3 2024-25, higher than 5.6% in previous quarter - DD News]. Nominal GDP growth was projected at 9.7% [source: India's real GDP grew 6.2% in Q3 2024-25, higher than 5.6% in previous quarter - DD News].
64
What does the Tax-to-GDP ratio indicate?
A nation's tax revenue relative to the size of its economy (GDP) [source: 151]. It helps compare tax receipts over time and internationally [source: 152, 153].
65
What does a decrease in the Tax-to-GDP ratio suggest according to the document?
Slowing economic growth rates [source: 155]. (It does not necessarily indicate less equitable income distribution [source: 156]).
66
What was India's projected Tax-to-GDP ratio for 2024-25? How does it compare historically and globally?
Projected at 11.8% for 2024-25, up from around 10% in the 2010s, but still lower than developed economies (often over 30%) [source: The tax-to-GDP ratio: How well is India collecting its dues? - Value Research].
67
Where can Money Bills be introduced in the Indian Parliament? Can Rajya Sabha amend/reject them?
Money Bills can only be introduced in Lok Sabha [source: 160]. Rajya Sabha cannot reject or amend them [source: 160].
68
Can Rajya Sabha vote on Demands for Grants?
No. Proposals seeking withdrawal from the Consolidated Fund of India are presented to Lok Sabha as Demands for Grants, and Rajya Sabha cannot vote on these [source: 161].
69
What is the primary purpose of using deficit financing in India, according to the text?
For raising resources for economic development, especially when tax/non-tax revenues are insufficient and private sector investment is low [source: 163, 164, 165, 167].
70
How does inflation generally affect debtors and bondholders?
Inflation benefits debtors, as they repay loans with money worth less than when borrowed [source: 170, 171]. Inflation harms bondholders, as it erodes the purchasing power of fixed interest payments (coupons) and the principal repayment [source: 172, 173, 177].
71
What is Disguised Unemployment?
Unemployment that does not affect aggregate economic output [source: 178]; occurs when productivity is low and too many workers fill too few jobs [source: 179]. Often seen in family agriculture where extra workers' contribution is negligible [source: 181, 182, 183, 184].
72
What is the Marginal Productivity of Labour in the case of disguised unemployment?
Zero [source: 187]. Removing the extra workers does not decrease overall productivity [source: 185].
73
Arrange the following assets in decreasing order of liquidity: Time Deposits, Currency, Demand Deposits, Savings Deposits.
Currency > Demand Deposits > Savings Deposits > Time Deposits [source: 190]. Currency is the most liquid [source: 191]. Time deposits like CDs are least liquid as funds are locked for a fixed term [source: 195, 196].
74
What is Cost-Push Inflation?
Inflation resulting from increased prices of production inputs (like materials, energy) working through the supply chain [source: 199, 200].
75
What is Demand-Pull Inflation?
Inflation occurring when increased money supply/credit stimulates overall demand for goods/services to rise faster than the economy's production capacity [source: 202].
76
What were the trends in India's M3 money supply growth towards the end of 2024?
M3 growth was around 10.0% to 10.1% year-over-year, indicating an expansion in monetary availability [source: RBI to Release M3 Money Supply Data for December 2024 - Wealthway FX].
77
Which method of financing a budget deficit is likely to be the most inflationary?
Creating new money (printing currency) [source: 204]. This increases money supply directly, leading to inflationary pressure [source: 205].
78
What happens to the interest rate if the demand for money increases while the supply remains the same?
The interest rate tends to increase [source: 207]. With higher demand for limited money, lenders can charge higher rates [source: 209].
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What is the relationship between Capital Formation and Economic Growth according to the document?
Capital formation (net capital accumulation, like equipment, tools, assets) is crucial for economic growth, especially in developing economies [source: 210, 211, 212]. Economic growth in country X will necessarily occur if there is capital formation in X [source: 210].
81
What was India's Gross Capital Formation as a percentage of GDP in 2023?
Approximately 31% of GDP. Gross Fixed Capital Formation was about 33.5% of GDP in FY 2024-25 components.
82
How is National Income defined in the text? What is Gross National Income (GNI)?
National income is the money value of final goods and services produced by residents over a period [source: 213] or the sum of factor income generated [source: 214]. GNI is the total income earned by a nation's people and businesses, including GDP plus net income from overseas sources [source: 215, 217].
83
What is India's approximate per capita income in FY 2023?
Nearly ₹2 lakh, representing a significant increase over the last decade.
84
What are Capital Gains? Give examples from the text.
The net profit an investor makes from selling a capital asset for more than its purchase price [source: 218]. Arises when the asset's value increases [source: 220]. Examples: Profit from selling property whose value increased, or profit from selling a painting whose value increased [source: 221, 222]. Sale of products is not capital gain [source: 219].
85
What were the recent changes to Long-Term Capital Gains (LTCG) tax in India (effective July 2024)?
A uniform LTCG tax rate of 12.5% was applied across all asset classes. Indexation benefits were removed for most assets, though an option might exist for land/buildings acquired before the change date.
86
What reasons for food inflation in India are mentioned in the text?
Increasing income levels changing consumption patterns towards different food habits [source: 225, 226], and structural constraints in the food supply chain (inefficient marketing, weak storage, stagnant productivity) [source: 227, 228].
87
What was the trend of food inflation (CFPI) in India in FY25 (Apr-Dec) according to the Eco Survey 2025?
Food inflation rose to 8.4% in FY25 (Apr-Dec) from 7.5% in FY24, driven mainly by vegetables and pulses. Overall retail inflation (CPI) averaged 5.4% during this period.
88
What is the 'Base Effect' in inflation calculation?
The impact of the previous year's corresponding period inflation rate on the current period's rate [source: 231]. A low inflation rate in the previous year's base period can make even a small price index rise appear as high inflation currently, and vice versa [source: 232, 233].
89
What is a Closed Economy?
An economy that does not engage in international trade (no imports or exports) [source: 234, 235]. All goods and services are produced domestically [source: 236].
90
What are Self-Help Groups (SHGs) and how do they relate to inclusive growth?
Groups (often women) acting as financial intermediaries, collecting savings and providing micro-credit to members [source: 239, 240]. Promoting SHGs is part of the inclusive growth objective [source: 241].
91
How do Micro, Small, and Medium Enterprises (MSMEs) contribute to inclusive growth?
MSMEs play a crucial role by generating employment opportunities, especially in rural and backward areas [source: 242, 244]. Promoting them is part of inclusive growth [source: 245].
92
How does the Right to Education (RTE) Act contribute to inclusive growth?
RTE Act 2009 provides free, compulsory education (6-14 years), making education a fundamental right [source: 246, 247]. Implementing it supports inclusive growth [source: 248].
93
Mention a recent government initiative aimed at inclusive development from the 2024-25 Budget.
Pradhan Mantri Janjatiya Unnat Gram Abhiyan aims to benefit 5 crore tribal people across 63,000 villages. Other initiatives include 'Purvodaya' for Eastern India development and women-centric schemes.
94
What is Disinvestment? Is it used to pay back external debt according to the text?
The sale of government assets (equity) in Public Sector Enterprises (PSEs) [source: 249]. Used to reduce the burden on the exchequer and lower the Fiscal Deficit [source: 250]. The text states it is not used to pay back external debt [source: 251].
95
What is Strategic Sale/Disinvestment? Does it apply to all CPSE disinvestments in India?
Transfer of ownership and control/management of a public sector entity [source: 252]. Not every disinvestment is strategic; the government may retain majority share/control in many CPSEs [source: 253, 254, 255].
96
Why is economic growth often coupled with inflation according to the document?
Maintaining growth requires government initiatives (investment, fiscal/monetary policy, deficit financing) that increase aggregate demand, leading to inflation [source: 256, 257, 258].
97
What is Deflation? Who benefits from it?
A general decline in prices, associated with contraction in money/credit supply [source: 259]. Purchasing power of currency rises [source: 260]. Consumers benefit as they can buy more with the same nominal income [source: 261].
98
Which body publishes WPI data in India? What are the major group weights mentioned (Base 2011-12)?
Office of Economic Adviser, Ministry of Commerce and Industry [source: 263]. Weights: Primary Articles (22.62%), Fuel & Power (13.15%), Manufactured Products (64.23%) [source: 264].
99
Which body publishes "Energy Statistics" in India?
Central Statistical Organization (CSO), now part of National Statistical Organisation (NSO), under the Ministry of Statistics and Programme Implementation [source: 265, 266].
100
What is the Repo Rate? What happens when it is reduced?
The rate at which commercial banks borrow funds from RBI [source: 267]. A reduction allows banks to get funds cheaper [source: 268]. An increase makes borrowing from RBI more expensive [source: 269].
101
What is the current Repo Rate set by the RBI MPC (as of Dec 2023 / early 2024 context)?
The Repo Rate was kept unchanged at 6.50% during the recent period mentioned in the search results.
102
What does a Gini Coefficient value of 0 or 1 imply?
0 implies perfect equality in the system [source: 270]. 1 implies complete inequality [source: 271].
103
What is a Debenture? Who are debenture holders considered in relation to the company?
A type of debt instrument, usually long-term (>10 years) and not backed by collateral, only by the issuer's creditworthiness [source: 272, 273]. Debenture holders are considered Creditors of the company [source: 274].
104
What is a Debt Trap?
A situation where debt is hard/impossible to repay, often because high interest payments prevent principal repayment [source: 275]. A country is in a debt trap if it must borrow just to make interest payments on existing loans [source: 276].
105
What did the All India Debt and Investment Survey (AIDIS) report regarding rural household debt?
The Incidence of Indebtedness (IOI) was 35% in rural India, with significant reliance on non-institutional credit sources for some households.
106
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107
What limitation of GDP as a measure of well-being is mentioned in the text?
GDP primarily reflects the size of the economy, not overall well-being or quality of life [source: 277]. It doesn't account for factors like income distribution, environmental sustainability, or social welfare [source: 278].
108
How is India's Human Development Index (HDI) ranked, indicating well-being beyond just GDP?
India's HDI was 0.644 (medium category), ranking 134th in 2022.
109
How is Real Per Capita Income (RPCI) calculated according to the text?
RPCI = (National Income at Constant Prices / Total Population) x 100 [source: 281]. It's considered a measure of people's well-being [source: 281].
110
How is Net National Product (NNP) at factor cost calculated from GNP at market prices?
NNP at factor cost = GNP at market prices - Depreciation - Indirect taxes + Subsidies [source: 282]. It can also be derived from NNP at market prices by subtracting Net indirect taxes (Indirect taxes - Subsidies) [source: 283].
111
What are Gilt-edged Securities in the Indian context?
Government securities (like Central and State Government loans) are called gilt-edged because they carry very low risk, similar to British Government securities [source: 284]. In the US, they are called Treasury securities [source: 285].
112
What is the outlook for Indian Government Bonds (G-Secs / Gilts) in 2025 according to recent analysis?
The near-term outlook appears positive, supported by moderating growth, potentially contained inflation, and the RBI having room to cut rates. However, risks from a strong USD and fluctuating US bond yields remain.
113
What is Community Development?
A process where community members are supported to identify and take collective action on important issues [source: 286], empowering them and creating stronger communities [source: 287]. It's based on principles like empowerment, human rights, inclusion, social justice, self-determination, and collective action [source: 288].
114
Name some major Community Development Programmes run by the Indian government.
Examples include MGNREGA, PMAY, DAY-NRLM, Swachh Bharat Mission, NRHM/NULM, NSDM, Beti Bachao Beti Padhao, etc.
115
Why is the growth rate of per capita income usually higher at current prices than at constant prices?
Because current price series include the effect of price inflation, while constant price series adjust for inflation to show 'true' growth [source: 289, 290, 292]. Unless there's deflation, current price values will generally be higher than constant price values after the base year [source: 291].
116
What was the estimated growth rate for India's Real GDP vs Nominal GDP in 2024-25?
Real GDP growth was estimated at 6.5%, while Nominal GDP growth was estimated at 9.9% for 2024-25.
117
What does Supply-Side Economics focus on in microeconomics?
It deals with questions of what to produce, how much to produce, and for whom, prioritizing the producer's viewpoint [source: 293]. It considers factors like technology and costs of production [source: 294].
118
What are the recent estimates for sectoral GVA growth (supply side) in India for FY25?
Agriculture sector growth was expected to rebound to 3.8%, Industry at 6.2%, and Services remaining robust at 7.2%.
119
What is Consumer Equilibrium?
Achieving maximum possible satisfaction from commodities purchased given the consumer's income and market prices [source: 297].
120
What are the two main approaches mentioned for studying consumer equilibrium? What is 'Utility'?
1. Cardinal Utility Approach (Marshall's analysis) 2. Ordinal Utility Approach (Indifference curve analysis) [source: 298]. Utility is defined as the power of a commodity to satisfy a human want [source: 299].
