IMPORTANT TEN TOPICS

1. GDP multiplier (1/1-(c-m) (1-t)), aggregate demand, aggregate consumption,

propensity to import, welfare expenditure, direct benefit transfer, UBI,
propensity to consume, exogenous expenditure, Keynesian idea of exogenous
expenditure and tax reduction, IIP, aggregate employment, fiscal deficit, real
GDP, real wages, inflation, Fiscal policy, expansionary fiscal policy,

 GDP multiplier: The GDP multiplier is a measure of the overall impact that a
change in spending has on the economy. It represents the total increase in
economic output that results from an initial increase in spending. The size of
the multiplier depends on the marginal propensity to consume (MPC) and the
tax rate.
 Aggregate demand: Aggregate demand is the total demand for goods and
services in an economy at a given time, usually measured by the sum of
consumer spending, investment spending, government spending, and net
exports.
 Aggregate consumption: Aggregate consumption refers to the total spending
on goods and services by households and individuals in an economy.
 Propensity to import: The propensity to import is the proportion of income
that is spent on imports, rather than domestic goods and services.
 Welfare expenditure: Welfare expenditure refers to government spending on
social welfare programs, such as healthcare, education, and social security.
 Direct benefit transfer: Direct benefit transfer is a system in which
government benefits, such as subsidies or cash transfers, are directly deposited
into the bank accounts of eligible individuals, rather than being distributed
through intermediaries.
 UBI: UBI stands for Universal Basic Income, which is a proposal for a
government-funded program that would provide a regular cash payment to all
citizens, regardless of their income or employment status.
 Propensity to consume: The propensity to consume is the proportion of
additional income that households choose to spend, rather than save.
 Exogenous expenditure: Exogenous expenditure is spending that is not
directly influenced by changes in income or prices, such as government
spending on infrastructure or defense.
 Keynesian idea of exogenous expenditure and tax reduction: The
Keynesian idea of exogenous expenditure and tax reduction refers to the use of
government spending and tax cuts to stimulate economic activity during times
of recession or low growth.
 IIP: IIP stands for Index of Industrial Production, which is a measure of the
output of the industrial sector in an economy.
 Aggregate employment: Aggregate employment refers to the total number of
people employed in an economy.
 Fiscal deficit: Fiscal deficit refers to the difference between government
revenue and expenditure in a given period, usually a year.
  Real GDP: Real GDP refers to the total value of goods and services produced
in an economy, adjusted for inflation.
 Real wages: Real wages refer to wages adjusted for inflation, or the purchasing
power of wages.
 Inflation: Inflation is the rate at which the general level of prices for goods and
services is rising, reducing the purchasing power of money.
 Fiscal policy: Fiscal policy refers to the use of government spending and
taxation to influence the economy.
 Expansionary fiscal policy: Expansionary fiscal policy involves increasing
government spending and/or reducing taxes in order to stimulate economic
growth.

Overall, these concepts are related to macroeconomics and fiscal policy.

Understanding them is essential for analyzing the performance of an economy, and for
designing and implementing effective policies to promote growth, stability, and
welfare.

2. Money multiplier, Commercial banks, benchmark rates of interest, repo rate,

bond yield, real rates of interest, fractional reserve banking, Cash reserve ratio,
statutory liquidity ratio, multiplier with cash to deposit ratio (1+ctdr/ctdr+CRR),
CRR (1/crr), borrowing and lending, money circulating within the banking
system, withdrawal, potential to multiply,
 Money multiplier: The money multiplier is a measure of the potential increase
in the money supply resulting from a change in the monetary base (currency in
circulation and bank reserves). It represents the amount by which the money
supply can expand based on a given increase in the monetary base.
 Commercial banks: Commercial banks are financial institutions that accept
deposits and make loans to businesses and individuals.
 Benchmark rates of interest: Benchmark rates of interest are the reference
rates that determine the interest rates on loans and deposits in the economy.
Examples include the prime rate, LIBOR, and the federal funds rate.
 Repo rate: The repo rate is the rate at which the central bank lends money to
commercial banks, usually for short-term periods, in exchange for collateral.
 Bond yield: Bond yield refers to the rate of return on a bond investment,
expressed as a percentage of the bond's face value.
 Real rates of interest: Real rates of interest are interest rates adjusted for
inflation, or the true cost of borrowing or the true return on investment.
 Fractional reserve banking: Fractional reserve banking is a banking system in
which banks are required to hold only a fraction of their deposits as reserves,
while lending out the rest.
 Cash reserve ratio: The cash reserve ratio is the percentage of deposits that
banks are required to hold as reserves, which they cannot lend out.
  Statutory liquidity ratio: The statutory liquidity ratio is the percentage of
deposits that banks are required to hold in the form of liquid assets, such as
government securities.
 Multiplier with cash to deposit ratio (1+ctdr/ctdr+CRR): This formula
represents the money multiplier adjusted for the cash to deposit ratio, which is
the proportion of deposits held by banks in the form of cash.
 CRR (1/crr): This formula represents the simple money multiplier, which is
the maximum potential increase in the money supply resulting from a given
increase in the monetary base.
 Borrowing and lending: Borrowing and lending refer to the process of lending
and borrowing money between individuals, businesses, and financial
institutions.
 Money circulating within the banking system: This refers to the money that
is held and circulated within the banking system, as banks lend and borrow
from one another to meet their reserve requirements.
 Withdrawal: A withdrawal refers to the process of taking money out of a bank
account, either by visiting a bank branch or using an ATM.
 Potential to multiply: The potential to multiply refers to the ability of banks to
increase the money supply through the lending process, based on their reserve
requirements and the demand for loans in the economy.

Overall, these concepts are related to the functioning of the monetary system and the
role of commercial banks in creating and circulating money. Understanding them is
essential for analyzing the dynamics of the money supply, interest rates, and inflation,
and for designing and implementing effective monetary policy.

3. Export import, tariffs on imports and exports, quotas, tariffs on necessities,

tariffs on luxuries, tariffs on FoP, demand for imports and exports, average wage
for FoP, costs of production, nominal and real wages, sticky wages, world price,
supply and demand in domestic market, cost of FoP in domestic market,
exchange rates, protectionism, infant industry argument, robustness of domestic
industry,

 Export import: Export refers to the sale of goods and services to other
countries, while import refers to the purchase of goods and services from other
countries.
 Tariffs on imports and exports: Tariffs are taxes imposed on imports or
exports by governments, usually to protect domestic industries or to generate
revenue for the government.
 Quotas: Quotas are limits on the quantity of goods that can be imported or
exported in a given period, usually to protect domestic industries or to manage
the balance of trade.
 Tariffs on necessities: Tariffs on necessities are taxes imposed on essential
goods, such as food or medicine, which can have a disproportionate impact on
lower-income households.
 Tariffs on luxuries: Tariffs on luxuries are taxes imposed on non-essential
goods, such as high-end consumer goods, which can generate revenue for the
government or discourage excessive consumption.
 Tariffs on FoP: Tariffs on factors of production, such as raw materials or
machinery, can affect the cost of production for domestic industries and
influence their competitiveness.
 Demand for imports and exports: The demand for imports and exports
depends on factors such as consumer preferences, exchange rates, and the
relative costs of production in different countries.
 Average wage for FoP: The average wage for factors of production, such as
labor or capital, can affect the cost of production and the competitiveness of
domestic industries.
 Costs of production: The costs of production, including the prices of inputs
and the wages of labor, can affect the profitability of domestic industries and
their ability to compete with foreign firms.
 Nominal and real wages: Nominal wages are the actual dollar amounts paid to
workers, while real wages are adjusted for inflation and reflect the purchasing
power of wages.
 Sticky wages: Sticky wages refer to the tendency for wages to be slow to
adjust to changes in economic conditions, such as changes in supply and
demand.
 World price: The world price is the price of a good or service in the
international market, which can be influenced by factors such as supply and
demand, exchange rates, and trade policies.
 Supply and demand in domestic market: The supply and demand for goods
and services in the domestic market can be influenced by factors such as
production costs, consumer preferences, and government policies.
 Cost of FoP in domestic market: The cost of factors of production in the
domestic market, such as labor or raw materials, can affect the cost of
production for domestic industries and their competitiveness.
 Exchange rates: Exchange rates are the relative values of different currencies,
which can affect the costs of imports and exports and the competitiveness of
domestic industries.
 Protectionism: Protectionism refers to the use of trade barriers, such as tariffs
or quotas, to protect domestic industries from foreign competition.
 Infant industry argument: The infant industry argument is a justification for
protectionism that suggests that domestic industries need temporary protection
to develop and become competitive in the international market.
 Robustness of domestic industry: The robustness of domestic industry refers
to the ability of domestic firms to compete effectively in the international
market, based on factors such as their efficiency, productivity, and innovation.
Overall, these concepts are related to international trade and the various policies and
factors that affect the competitiveness of domestic industries and the balance of trade.
Understanding them is essential for analyzing the effects of trade policies, the impact
of globalization on different sectors of the economy, and the potential benefits and
costs of international trade.

4. Phillips curve, unemployment, inflation, aggregate- demand, -consumption, -

supply, -employment, inventory levels, costs of production, reverse of Phillips
curve, industrial output, demand for labor, aggregate output/production/supply,

 The Phillips curve is a graph that shows the inverse relationship between
unemployment and inflation in an economy. It suggests that as unemployment
decreases, inflation increases, and vice versa.
 Unemployment refers to the number of people in an economy who are willing
and able to work but cannot find employment.
 Inflation refers to the rate at which the prices of goods and services in an
economy increase over time.
 Aggregate demand is the total amount of goods and services that consumers,
businesses, and governments are willing and able to buy at a given price level.
 Aggregate consumption refers to the total amount of goods and services that
consumers are willing and able to buy at a given price level.
 Aggregate supply refers to the total amount of goods and services that firms
are willing and able to produce at a given price level.
 Employment refers to the number of people who are currently employed in an
economy.
 Inventory levels refer to the amount of goods and raw materials that firms
have on hand to meet customer demand.
 Costs of production refer to the expenses incurred by firms in producing
goods and services, including wages, raw materials, and capital expenses.
 The reverse of the Phillips curve suggests that when unemployment is high,
inflation is low, and when unemployment is low, inflation is high.
 Industrial output refers to the total amount of goods and services produced by
industrial firms in an economy.
 Demand for labor refers to the number of workers that firms are willing and
able to hire at a given wage rate.
 Aggregate output/production/supply refers to the total amount of goods and
services produced by all firms in an economy.

5. Say's law, supply creates its own demand, rationale,

Say's law, also known as the law of markets, is an economic principle that suggests
that supply creates its own demand. According to Say's law, the production of goods
and services generates income and purchasing power, which leads to the consumption
of those goods and services. In other words, the act of producing a good or service
creates demand for other goods and services in the economy.

The rationale behind Say's law is that producers will only produce goods and
services if they expect to sell them, and they can only sell them if there is demand for
them. When producers create a product, they also create an equal amount of value in
the economy. This value can be exchanged for other goods and services, which creates
demand for those goods and services.

Say's law has been criticized by some economists who argue that it does not hold true
in all circumstances, especially during periods of economic downturns or recessions.
During such periods, it is possible for there to be a general oversupply of goods and
services, which can lead to a lack of demand and excess inventory. However,
proponents of Say's law argue that such situations are temporary and can be resolved
through adjustments in production and pricing, and that over the long run, supply will
always create its own demand.

6. Aggregate employment, labor force participation, aggregate income

 Aggregate employment refers to the total number of people who are currently
employed in an economy. This includes both full-time and part-time workers,
as well as those who are self-employed.
 Labor force participation refers to the proportion of the total population that
is either employed or actively seeking employment. It is calculated by dividing
the labor force (the number of employed and unemployed individuals) by the
total population.
 Aggregate income refers to the total amount of income earned by all
individuals and businesses in an economy. This includes wages and salaries
earned by workers, profits earned by businesses, and any other forms of income
such as interest and rent.
 Aggregate employment, labor force participation, and aggregate income are all
important indicators of the health of an economy. A high level of aggregate
employment and labor force participation are generally considered positive
indicators, as they suggest that a large proportion of the population is gainfully
employed or seeking employment. Similarly, a high level of aggregate income
suggests that individuals and businesses are earning sufficient income to
support their needs and invest in future growth.
 Changes in these indicators can also provide insight into broader economic
trends. For example, a sudden decrease in aggregate employment or labor force
participation may suggest an economic downturn or recession, while a steady
increase in aggregate income may suggest a growing and healthy economy.
7. Budget, budget deficit, fiscal deficit, sources of receipts, tax and non-tax
receipts, other revenue, borrowing, foreign borrowing, domestic borrowing,
interest payments, Debt to GDP ratio, change in the levels of debt, capital
expenditure, Dividends/Profits and disinvestment, crowding out effect, effect on
availability of loanable funds, its impact on interest rates and exchange rates,
Fiscal policy, expansionary fiscal policy

 A budget is a financial plan that outlines an individual's or organization's

expected income and expenses over a specific period, typically one year.
 A budget deficit occurs when a government's expenses exceed its revenues in
a given period, typically one year.
 A fiscal deficit refers to the shortfall between a government's total spending
and its total receipts in a given period.
 Sources of receipts include taxes, non-tax receipts (such as fees and fines), and
other revenue sources such as sales of assets.
 Tax receipts refer to the money collected by the government from individuals
and businesses in the form of taxes, such as income tax, corporate tax, and
sales tax.
 Non-tax receipts refer to the money collected by the government from other
sources, such as fees, fines, and penalties.
 Other revenue sources can include income from state-owned enterprises,
foreign aid, and grants.
 Borrowing is a common method used by governments to finance budget
deficits. It can be done through domestic borrowing (borrowing from within the
country) or foreign borrowing (borrowing from other countries).
 Interest payments refer to the money paid by the government on its
borrowings, typically in the form of bond or loan interest.
 The debt-to-GDP ratio is a measure of a country's debt relative to its GDP. It
is calculated by dividing the country's total debt by its GDP.
 Changes in the levels of debt can affect a country's credit rating, which can
impact its ability to borrow in the future.
 Capital expenditure refers to the money spent by the government on long-
term investments, such as infrastructure projects and education.
 Dividends/profits and disinvestment refer to the sale of government-owned
assets, such as state-owned enterprises or land.
 The crowding out effect occurs when increased government borrowing leads to
higher interest rates, which can reduce private sector investment.
 Fiscal policy refers to the use of government spending and taxation to
influence economic activity.
 Expansionary fiscal policy involves increasing government spending and/or
decreasing taxes to stimulate economic growth.

8. Fisher's idea of exchange rates vs. interest rates. Nominal interest, real
interest, real rates of return, nominal rates of return (RoR), opportunity cost of
capital in foreign and domestic markets, FDI, FII, $ inflow, $ outflow, Net foreign
investment, Net exports, effect on money market, bond market, exchange rates
and stock market,

 Fisher's idea of exchange rates vs. interest rates is based on the relationship
between nominal interest rates, real interest rates, inflation, and exchange rates.
According to Fisher's theory, the exchange rate between two countries'
currencies should reflect the difference in their nominal interest rates, adjusted
for inflation.
 Nominal interest rates are the stated rates of interest that are charged on loans
or earned on investments, without taking into account inflation. Real interest
rates, on the other hand, reflect the actual purchasing power of the interest
earned or paid, after adjusting for inflation. The real rate of return is the rate of
return on an investment after adjusting for inflation, while the nominal rate of
return is the rate of return before adjusting for inflation.
 The opportunity cost of capital in foreign and domestic markets refers to the
cost of investing in one market versus another, taking into account the potential
return on investment and the associated risks.
 Foreign direct investment (FDI) refers to the investment made by a foreign
company in a domestic company or market, while foreign institutional
investment (FII) refers to the investment made by foreign institutional investors
such as mutual funds, pension funds, and hedge funds.
 The flow of dollars into and out of a country is known as $ inflow and $
outflow, respectively. The net foreign investment is the difference between the
inflow and outflow of capital from a country.
 Net exports are the difference between a country's exports and imports, and
they have a significant impact on a country's economy, including its money
market, bond market, exchange rates, and stock market.
 In the money market, changes in interest rates affect the demand for money
and, as a result, the exchange rate between two currencies. In the bond market,
changes in interest rates affect the price of bonds and, therefore, the exchange
rate. In the stock market, changes in exchange rates can affect the value of
stocks, especially for companies that rely heavily on exports or imports.
 Overall, Fisher's theory highlights the importance of considering inflation and
interest rates when analyzing exchange rates, investment opportunities, and
overall economic conditions.

9. Low skill low wage (LSLW) trap, skill ladder and wage ladder, saturation in
wage, saturation in labor market, presence of hi-tech industry, conditions for its
presence, incentive to acquire skill, cost to acquire skill, skill standardization and
certification, asymmetric information, geographical limitations, limitations to
acquire information, career guidance/counselling initiatives, push towards
vocational education,
  The low skill low wage (LSLW) trap refers to a situation where individuals
with low levels of education or skills are trapped in low-wage jobs with limited
opportunities for advancement. The skill ladder and wage ladder refer to the
idea that as individuals acquire new skills, they can climb a ladder of higher-
skilled and higher-paying jobs.
 Saturation in wage refers to a situation where the wage for a particular job
reaches a maximum level due to market forces such as supply and demand.
Similarly, saturation in the labor market occurs when there are more workers
than available jobs in a particular sector, leading to lower wages.
 The presence of hi-tech industry is often seen as a way to break out of the
LSLW trap as these industries tend to require higher skill levels and pay higher
wages. However, for hi-tech industry to be present, certain conditions must be
met such as a skilled labor force, infrastructure, and access to capital.
 Incentives to acquire skills can include higher wages, promotions, and career
advancement opportunities. However, there are also costs associated with
acquiring new skills, such as education and training costs.
 Skill standardization and certification can help to ensure that employers have
confidence in the skills of their employees, while asymmetric information can
make it difficult for employers to know the true skill level of job candidates.
 Geographical limitations can also play a role in the LSLW trap, as individuals
in certain regions may have limited access to education, training, or job
opportunities.
 Career guidance and counseling initiatives can help individuals identify
potential career paths and develop the skills necessary to advance in their
chosen field. Vocational education can also provide individuals with practical
skills that can lead to higher-paying jobs.
 Overall, breaking out of the LSLW trap requires a combination of individual
initiative, government support, and a strong economy with opportunities for
growth and development

10. Behavioral economics, nudge, prospect, social norm, game theory, prisoner's
dilemma, chicken, tragedy of commons, ultimatum game... assumption of
rationality, broadening of rationality assumption, taking behavioral biases as a
part of rationality,

 Behavioral economics is a field of study that combines insights from

psychology and economics to understand how people make decisions in real-
world situations. One key concept in behavioral economics is the idea of
nudges, which are small changes in the environment that can encourage or
discourage certain behaviors.
 Prospect theory is another concept in behavioral economics, which suggests
that people's decisions are influenced by the potential gains or losses involved,
rather than just the overall value of the outcome. Social norms also play a role
 in decision-making, as people are often influenced by the actions and beliefs of
those around them.
 Game theory is a mathematical framework used to study decision-making in
situations where the outcome depends on the choices of multiple individuals.
The prisoner's dilemma and the chicken game are examples of classic games in
game theory that demonstrate the importance of cooperation and coordination.
 The tragedy of the commons is another concept in game theory that refers to
situations where individuals acting in their own self-interest can lead to a
negative outcome for the group as a whole. The ultimatum game is another
game used in behavioral economics to study how people make decisions in
situations where they are offered a share of a larger amount of money.
 Traditionally, economic models have assumed that individuals are rational and
make decisions based on maximizing their own utility. However, behavioral
economics has broadened this assumption of rationality to include the fact that
people are subject to cognitive biases and heuristics that can influence their
decision-making.
 Instead of viewing these biases as deviations from rationality, behavioral
economists argue that they are a part of rational decision-making, as people
often use shortcuts and mental strategies to make decisions in complex
situations. This broader view of rationality has led to a better understanding of
how people make decisions in real-world situations and has informed policy
interventions designed to nudge people towards making better decisions.

Question Samples

1. GDP multiplier will depend on MPC higher or lower MPC?

2. Welfare expenditure should be targeted for higher consumption. Why?
3. Keynes suggested increase in govt. expenditure to create ___?
4. Exogenous expenditure will cause fiscal deficit to increase. What is the direct
result of this?
5. Is universal basic income a Keynesian idea?
6. If the idea of multiplier works then IIP should move in what direction?
7. If taxes are reduced then its impact on aggregate demand will be?
8. If aggregate employment increases will the higher tax revenue stimulate the
aggregate demand?
9. Real GDP can be lower even if multiplier shows its effect. Why?
10. Higher propensity to import will dampen the multiplier’s value. Refute or
justify.
11. Expansionary fiscal policy must be geared towards higher consumption or
higher employment as per Keynes?
12. What is the utility of CRR in fractional reserve banking?
13. Repo rate should move in what direction if money contraction is needed?
14. Money in the banks will have the potential to multiply as long as…?
15. SLR makes what part of reserve if CRR is reserve for savings deposits?
16. If money is withdrawn and kept as cash then credit multiplier gets effected in
what way?
17. If bond yields fall lower than when you bought it, is it financially beneficial to
sell it?
18. Tariffs on imports help for a positive trade balance. How?
19. If the tariff on FoP is imposed then can it impact the exports of the country?
20. How can export of necessities impact the prices of those goods in domestic
market?
21. If the world price is higher than domestic price of a G&S, is it necessary that
economy will export that G&S? WHY?
22. Quotas ultimately act like tariffs. Justify.
23. Higher exports will increase the prices for FoP in the domestic market. Justify.
24. Export oriented trade policy may have inflationary effect on domestic prices.
How?
25. Exports are cheaper when wages are sticky. Why?
26. Increase in domestic demand of a G&S which is an export, can make export
prices uncompetitive?
27. Phillips also curve suggests that higher levels of inflation lead to low
unemployment. Justify or refute.
28. What is indicated by rising inventory levels about aggregate demand?
29. Trace the linear relationship between variables that justifies Say’s law.
30. If labor force participation increases on the side of the unemployed, how are
unemployment rates affected?
31. Why is inflation targeting aims at lowering aggregate consumption?
32. Can supply really create its own demand?
33. Inflation targeting can lower the industrial output. Why?
34. Higher budget deficits subsequently will lead to ever increasing interest
payments. Justify or refute.
35. Debt to GDP ratio is an indicator of ________?
36. Capital expenditure aims to create ____________?
37. Revenue from disinvestment will have a trade-off against revenue from
___________?
38. Crowding out effect of loanable funds occurs when govt. incurs ___________?
39. If the BR of interest is lower in foreign countries, it may promote $ inflow via
FDIs or FIIs?
40. Why does increase in BR of interest depreciates exchange rate value as per
Fisher?
41. Why is net export are considered the same as net foreign investment?
42. What needs to be discounted to arrive at real RoR in economics?
43. High nominal interest rates are more attractive for FIIs. Why?
44. Presence of hi-tech industry is needed to escape LSLW trap. Justify or refute.
45. A high level of minimum wage may elongate the LSLW trap.
46. Why does the private industry is least likely to rid the LSLW trap from the
labor market?
47. Information asymmetry may further the LSLW trap. Justify.
48. Nudge theory may be open to potential abuse in its policy application.
49. Game theory like situations can be resolve by examining what parameter?
50. Why does cost take precedence over RoR?