Section - A Basic Terms and Concepts in Economics

1. Difference between (Minimum 3 points):

a) Micro and macro economics

Sr. No. Micro Economics Macro Econmics

1 Study of economics at individual, group
or company level
2 Deals with individual income, output,
price of goods etc.
3 Helps in developing policies to
appropriate resource distribution at firm
level.
Study of National Economy as whole
Deals in aggregates such as National
output, income as well as general price
levels.
Helps in strengthening policies and uniform
resource distribution at national level.

b) Types of markets (Monopoly, Oligopoly, Perfect competition, Monopolistic)

Monopoly Oligopoly Monopolistic Perfect competition

Only one seller in Few sellers supply a Many sellers offer products Many sellers with
market sizable portion of that differ slightly but serve similar products.
products in market. similar purpose
Complete control over Firm can influence Firm has partial control over Firm has no control
price . the prices but this price, can influence price by over price and has to
can lead to price creating a differentiated accept price as
war. image of its product. determined by market
forces.
Single firm has full Few firms and each Large number of firms and Firm has no influence
control over industry. firm has significant hence each firm has less on other firms.
impact on activities impact on other firms.
of other firms.

c) GDP and GNP

Sr. No. GDP GNP

1 Measures domestic production within Measures all production by the country’s
geographical boundary of country. Nationals.
2 GDP= G+I+C+(X-M) GNP= G+I+C+X+Z
3 Measurement of strength of economy Measurement of contribution of all its
of country citizen’s towards country’s economy
Where,
C=Consumption
I= Investment
G=Government
X= Exports
M= Imports
Z= Domestic Resident’s net income
d) FDI, FPI, FII and DII
FDI FPI FII DII
FDI stands for Foreign FPI stands for Foreign FII stands for Foreign DII stands for Domestic
Direct Investment. Portfolio Investment. Institutional Investor. Institutional Investors.
Investing directly in Direct investment but Investor or group of Invest in financial assets
another country only in financial assets investors investing in and securities of
of company located in secondary market of country they are
another country. country. currently residing in.
Done through 2 routes Done by investor who is To participate in market Can directly invest by
(Automatic and not involved in of India FIIs must opening a demat
government Route) management of register themselves account.
company. with SEBI

e) Repo and reverse repo rate

Sr. No. Repo Rate Reverse Repo Rate

1 Rate at which RBI lends money to
Commercial banks in India
2 Helps in managing short term deficiency
of funds.
3 Commercial banks get funds using
government bonds as collateral.
Rate at which RBI borrows funds from
Commercial banks in India
Helps in reducing overall supply of money in
the economy.
Commercial banks deposit their excess funds
and receive interest from the deposit.

f) Current and capital account

Sr. No. Current Account Capital Account

1 Record of fund inflow and outflow of
international trades during a year.
2 Affects the net income of country.
3 Deals with international trade, receipt
of cash non-capital items etc.
Representation of capital investments and
expenditures for making international
trade happen
Affects the current account or financial
account.
Deals with application of capital and how
they are sourced.

g) Fiscal and monetary policy

Sr. No. Fiscal Policy Monetary Policy

1 Set by Government. Set by Central Bank.
2 Involves change in government Involves change in Interest rates/ money
spending and tax rates supply.
3 It has effect on government budget and It has effect on exchange market and
borrowing. commercial banking.
h) Inflation, deflation, and stagflation

Inflation Deflation Stagflation

Indicates average price of
goods and services have
increased over time.
Caused due to either demand
pull or cost push.
Leads to higher prices and
devalues cash.
Indicates average price of goods
and services have decreased
over time.
Fall in aggregate demand (or
increase in supply) leading to fall
of prices
Restricts availability of credit
within an economic system,
leading to lower demand.
Indicates increase in prices along
with increase in unemployment.
Cause by conflicting government
policies(printing more money
and increasing taxes at same
time)
Cost of living increases while the
source of income remains same
or decreases.

i) Supply and demand market

Sr. No. Supply Market Demand Market

1 Refers to quantity supplied by sellers.
2 Increases with rise in prices and vice
versa.
3 If supply is more than demand, there
will be surplus in market
Refers to quantity demanded by buyers.
Increases with fall in prices and vice versa.
If demand is more than supply, there
would be deficit in market.

j) Capitalism, socialism, and communism

Capitalism Socialism Communism

Individual and private businesses
own everything.
Also known as Free Market
Economy.
Individual and private businesses
make economic decisions free
from government regulations.
Government owns/regulates
some aspects of economy for
benefit of nation.
Also known as Mixed Economy.
Individual and private businesses
can make their economic
decisions to some extend.
Government owns/regulates all
aspects of economy.
Also known as Command
Economy.
Government Regulates all
economic decisions.

2. Explain (Maximum 100 words):

a) Law of supply and demand

Law of Supply- It shows a direct relationship between price and supply of a commodity. The law states
that as the price of commodity increases, the quantity of commodity supplied per unit of time increases
and vice versa, assuming all other factors influencing supply remain unchanged. In this change in price is
the cause and change in supply is the effect.
Law of Demand- It expresses the inverse relationship between the price and quantity demanded of
commodity, other things being unchanged. Hence when price rises, demand falls and when price falls
demand rises, provided other factors other than price remains same.

b) Marginal utility and law of diminishing returns

Marginal utility refers to satisfaction that a consumer receives from a product. Marginal utility helps
analysts to determine how much of a product a consumer will buy. It implies that satisfaction to
consumer of an additional unit of product is inversely related to number of units of product he already
owns. Marginal utility of a product decreases as buyer purchases more and more of that product, until
the point is reached where he has no additional need of more units. At this point marginal utility is zero.

The law of diminishing returns states that as we increase the quantity of one input which is combined
with other fixed inputs, marginal physical productivity of variable input must eventually decline. Hence it
states that total productivity is bound to increase with an increase in quantity of variable input but as
quantity of input keeps on increasing, productivity rises to maximum then starts to decline and
eventually becomes negative.

c) Balance of payments

The balance of payment of a country presents the monetary picture of international trade of country. It
is a systematic record of all economic transactions between the resident of reporting country with
residents of rest of the world during a certain period of time, usually one year. The balance of payment
account shows all receipts and payments on account of goods exported, services rendered, capital
received by residents of a country and goods imported, services received and capital transferred by
residents of the country.

There are three components of balance of payment viz current account, capital account and financial
account. In ideal situations the total of current account must balance with the total of capital and
financial accounts.

d) Purchasing power parity

Purchase power parity (PPP) allows for the comparison of the purchasing power of various world
currencies to one another. The purchasing power parity calculation tells how much things would cost if
all countries used the same currency. In other words, it is the rate at which one currency would need to
be exchanged to have the same purchasing power as another currency. It is based on an economic
theory that states the prices of goods and services should equalize among countries over time.

e) Bonds and stocks

Stocks represent partial ownership, or equity, in a company. When one buys stock, He/She actually
purchases a tiny slice of the company — one or more "shares." And the more shares one buys, the more
of the company he/she own.
Bonds are a loan from person to a company or government. There’s no equity involved, nor any shares
to buy. Put simply, a company or government is in debt to person when he buys a bond, and it will pay
him interest on the loan for a set period, after which it will pay back the full amount he bought the bond
for.
f) Central Bank

“A Central Bank is the bank in any country to which has been entrusted the duty of regulating the
volume of currency and credit in that country”-Bank of International Settlement. It issues currency,
regulates money supply, and controls different interest rates in a country. Apart from this, the central
bank controls and regulates the activities of all commercial banks in a country. The central bank does
not deal with the general public directly. It performs its functions with the help of commercial banks.

g) Economies of scale

h) Human development index

The Human Development Index (HDI) is an index that measures key dimensions of human development.
It is a statistic composite index that takes in consideration three key dimensions:

 A long and healthy life – measured by life expectancy.

 Education – measured by expected years of schooling of children at school-entry age and mean
years of schooling of the adult population.
 And a decent standard of living – measured by Gross National Income per capita adjusted for
the price level of the country.
A country scores a higher HDI when the lifespan is higher, the education level is higher, and the gross
national income GNI (PPP) per capita is higher.

i) Indifference curve

Indifference curve depicts the various alternative combinations of the goods, which provide same level
of satisfaction to the consumer. It is a graphical representation of an indifference schedule, which enlists
all such combination of goods in tabular form, giving exactly the same total satisfaction to the consumer.
For each level of satisfaction it is possible to formulate a different indifference schedule and hence a
different indifference curve. It is possible to draw infinite number of indifference curves.

j) GDP per capita

GDP per capita, is a measure of a country's economic output that accounts for its number of people. It
divides the country's gross domestic product by its total population. A country's GDP or gross domestic
product is calculated by taking into account the monetary worth of a nation's goods and services over a
certain period of time, usually one year. Then, this amount of wealth is divided by given country's
population to get its GDP per capita. Per capita GDP shows a country's economic product value per
person. Universally, it is one of the best measures of prosperity.
 Section - B Current news and some data, budget, growth and forecast
1. What is India’s ranking in terms of Nominal GDP and its absolute value (in $ and ₹)?
It is the world's sixth-largest economy by nominal GDP. Its absolute value is $3.05 trillions and
227.25Lakh Crores.

2. Where does India’s GDP rank in terms of PPP (Purchasing power Parity)?
It is the world's third-largest economy by PPP (Purchasing power Parity).

3. List the industries which are considered under core sectors?

The eight core industries are- Coal, Crude oil, Natural Gas, Petroleum refinery products, Fertilizer,
Cement, Steel, and Electricity generation
4. What is the latest CPI (Consumer Price Index) and WPI (Wholesale Price Index) value?
Consumer Price Index CPI-160.40
Wholesale Price Index WPI-132.7
5. What was the Year-on-Year GDP growth of India?
The Indian GDP expanded 1.6% year-on-year in Q1 2021.
6. Compare GDP growth/shrink with NIFTY-50 growth for the last year and present your thoughts on
the same?
India’s GDP saw annual contraction of 7.3% in FY 20-21.
Nifty-50 saw annual growth of 48.60% in FY 20-21.
Nifty-50 saw high annual growth as compared to Indian GDP. This stellar growth has been largely
because of positive foreign fund infusion into Indian Markets.
7. Compare India’s trade with following countries (How much India exports to them and imports)
a) USA
Imports-$34.3billions
Exports-$57.7billions
b) China
Imports-$65.26billions
Exports-$16.61billions
c) Europe
Imports- €45.7 billion
Exports-€45.82 billion
d) Middle East
1. United Arab Emirates
Imports-$30.22illions
Exports-$28.81billions
2. Saudi Arabia
Imports-$20.32illions
Exports-$6.39billions
8. What are India’s Top 3 Imports and their contribution to the total (by value and percentage)?
1. Mineral fuels including oil: US$104.4 billion (28.4% of total imports)
2. Electrical machinery, equipment: $42.9 billion (11.7%)
3. Gems, precious metals: $41 billion (11.2%)

9. What are India’s Top 3 Exports and their contribution to the total (by value and percentage)?
1. Mineral fuels including oil: US$27.6 billion (10% of total exports)
2. Gems, precious metals: $24.5 billion (8.9%)
3. Pharmaceuticals: $18.4 billion (6.7%)

Section - C Know Your Economy

1. What is SDG India Index? (Maximum 50 Words)

The SDG India Index computes goal-wise scores on the 16 SDGs for each State and Union
Territory. These scores range between 0–100, and if a State/UT achieves a score of 100, it
signifies it has achieved the 2030 targets. The higher the score of a State/UT, the greater the
distance to target achieved. States and Union Territories are classified in four categories based
on their SDG India Index score: Aspirant (0–49), Performer (50–64), Front-Runner (65–
99), Achiever (100).

2. Analyse the performance of your home State/UT on two parameters, namely: State GDP and
SDG India Index, for the past 3 years. (Years to be considered: 2018-19, 2019-20 and 2020-21)

Points to look out for:

a) Year-on-Year performance of State on various parameters in SDG Index
b) Year-on-Year relationship between GDP and SDG Index
c) Relationship between 3 sectors of GDP and parameters SDG Index

The economy of Punjab is the 15th largest state economy in India with ₹6.44 lakh

crore (US$90 billion)in gross domestic product and a per capita GDP of US$2,500, ranking 16th amongst
Indian states. Punjab ranked first in GDP per capita amongst Indian states in 1981 and fourth in 2001,
but has experienced slower growth than the rest of India in recent years, having the second-
slowest GDP per capita growth rate of all Indian states and UTs between 2000 and 2010, behind
only Manipur.

Year GDP at current Per capita at current Growth (%) at

price(CroreINR) prices (INR) current prices (INR)
2020-21 541,615 172,340 -2.55
2019-20 555,778 179,163 5.80
2018-19 525,303 171,556 11.57
On SDG front, Punjab ranked 13 on SDGs 2020–21 with overall score of 68, with an increase of 6 scores
from 2019-20’s score of 62. In 2018-19 Punjab’s composite score was 60. Last year Punjab was
categorized under Performer State(50-64). With an increase of 6 scores, Punjab moved into Front-
Runners Category(65-99). Goal wise Punjab state tops in 2 goals namely SDG 7-Affordable and Clean
Energy and SDG 11-Sustainable cities and communities. In 2020,Punjab lags behind in 2 goals namely
SDG 5-Gender Equality and SDG 15-Life on land with scores below 50.