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Note
This document compiles 100 important basic terms for Economy. Read and acquaint
yourself with these before you start preparing your UPSC prep.

If you have already started, revisit these 100 terms regularly to revise and build a strong
foundation.

Struggling with anything related to the UPSC Preparation and need a friend, mentor and
guide to talk to? Write to me directly at ayusshsanghiofficial@gmail.com

You can also tag me on Twitter with your queries: @ayusshsanghi or drop your comments in

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1. Balance of Trade (BoT):

The difference in value between a country's exports and imports in its trade with
another country.

2. Balance Sheet:
A financial statement that provides a snapshot of a business concern's accounts at the
end of a year, showing assets, liabilities, and equity.

3. Banker's Cheque:
A type of cheque issued by one bank to another as a secure form of payment.

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4. Bank Rate:

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The interest rate at which the Reserve Bank of India lends money to commercial banks.

5. Barter:
The act of trading goods or commodities by directly exchanging one for another.
sa
6. Bearer:
A term used on cheques and bills indicating that the holder has the same rights as the
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person who issued it.

7. Black Money:
us

Unaccounted money, concealed income, or undisclosed wealth that remains unreported.

8. Bond:
ay

A legal agreement to repay a specific sum of money (principal) with a fixed rate of
interest at a future date.
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9. Budget:
An estimate of expected revenues and expenditures for a specific period, typically a year,
presented in detail.

10. Budget Deficit:

When a government's expenditure exceeds its revenue, resulting in a negative balance
between the two.
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11. Bulls:
Speculators in the stock market who buy goods with the anticipation of prices rising,
sometimes without having the funds to pay for them. (Bears are somewhat the opposite)

12. Buyer's Market:

A market condition where the supply of goods exceeds demand, giving buyers the
advantage in negotiating favourable deals.

13. Commercial Banks:

Financial institutions that create credit, accept deposits, provide loans, and offer other

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financial services.

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14. Call Money:
Short-term loans are typically provided for a brief period at low-interest rates.

15. Deflation:
sa
A state in the monetary market characterised by a decrease in the money supply in
circulation.
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16. Depreciation:
A reduction in the value of fixed assets due to wear and tear.
us

17. Devaluation:
An official reduction in the foreign value of a domestic currency, aimed at boosting
exports and discouraging imports.
ay

18. Dividend:
The earnings distributed to shareholders from a company's profits.
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19. Dumping:
The practice of selling a product at different prices in different markets, often at a lower
price in markets with more elastic demand.

20. Exchange Rate:

The rate at which the central bank exchanges one country's currency for another.
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21. Excise Duty:

A tax imposed on the manufacture, sale, and consumption of various commodities, such
as textiles, liquor, etc.

22. Fiscal Policy:

The government's decisions regarding expenditure, taxation, and borrowing to manage
the economy.

23. Gross Domestic Product (GDP):

A measure of the total value of goods and services produced by a country's economy over

hi
a specific period, usually a year.

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24. Inflation:
A sustained and significant increase in the general price level over an extended period of
time. sa
25. Monopoly:
A market situation where a single seller dominates the sale of a particular product.
sh
26. Monopolistic Competition:
Market structure with many sellers offering differentiated products.
us

27. Bilateral Monopoly:

A market situation with a single buyer and a single seller.
ay

28. Monopsony:
A market situation where there is a single buyer for a unique product.
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29. Oligopoly:
Market structure characterised by a few sellers offering a limited number of products,
often leading to price competition.

30. Repo Rate:

The interest rate at which banks borrow funds from the Reserve Bank of India, injecting
liquidity into the market.
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31. Reverse Repo Rate:

The rate at which the Reserve Bank of India borrows funds from banks for a short-term,
withdrawing liquidity from the market.

32. Automatic stabilisers:

Refers to certain spending and tax rules that automatically increase expenditures or
decrease taxes during economic downturns, helping stabilise the economy.

33. Autonomous expenditure multiplier:

The ratio of the change in aggregate output or income to a change in autonomous

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spending.

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34. Balance of payments:
A set of accounts summarising a country's transactions with the rest of the world.

35. Balanced budget:

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A budget in which government spending equals tax revenue.

36. Balanced budget multiplier:

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The change in equilibrium output resulting from an equal increase or decrease in both
taxes and government spending.
us

37. Base year:

The reference year used to calculate real GDP by using its prices as a benchmark.
ay

38. Broad money:

Includes narrow money and time deposits held by commercial banks and post office
savings organisations.
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39. Capital:
A factor of production that has been produced itself and is not entirely consumed in the
production process.

40. Capital gain/loss:

The increase or decrease in the value of wealth held by bondholders due to appreciation
or reduction in bond prices in the market.
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41. Capital goods:

Goods purchased for the purpose of producing other goods rather than meeting
immediate consumer needs.

42. Cash Reserve Ratio (CRR):

The percentage of deposits that commercial banks are required to keep with the Reserve
Bank of India (RBI).

43. Circular flow of income:

The concept that the value of goods and services produced in an economy circulates in a

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circular manner as factor payments, expenditures, and aggregate production.

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44. Consumer durables:
Goods consumed by consumers that last over a period of time, such as appliances or
vehicles.
sa
45. Consumer Price Index (CPI):
The percentage change in the weighted average price level, calculated using prices from
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a specific basket of consumption goods.

46. Consumption goods:

Goods and services consumed by individuals to satisfy immediate needs or desires.
us

47. Corporate tax:

Taxes imposed on the income earned by corporations or private sector firms.
ay

48. Currency deposit ratio:

The ratio of money held by the public in the form of currency to that held as deposits in
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commercial banks.

49. Effective demand principle:

It states that in the short run, when the supply of final goods is assumed to be infinitely
elastic at a constant price, aggregate output is determined primarily by the level of
aggregate demand. In other words, the total output of an economy depends on the
overall level of demand for goods and services, rather than just the capacity to produce
them.
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50. Exports:
The sale of goods and services by a domestic country to the rest of the world.

51. External sector:

Refers to the economic transactions between a domestic country and the rest of the
world.

52. Externalities:

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Benefits or harms that occur to individuals, firms, or entities due to economic activities,
without corresponding payment or compensation.

ng
53. Fiat money:
Money that has no intrinsic value and is declared as legal tender by the government.
sa
54. Final goods:
Goods that do not undergo further transformation in the production process.
sh
55. Fixed exchange rate:
An exchange rate between currencies of different countries that is fixed at a certain level
and adjusted infrequently.
us

56. Foreign exchange:

Foreign currency, referring to currencies other than the domestic currency of a given
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country.

57. Foreign exchange reserves:

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Foreign assets held by a country's central bank.

58. Flexible/floating exchange rate:

An exchange rate determined by market forces of demand and supply without central
bank intervention.

59. Four factors of production:

Land, labor, capital, and entrepreneurship, collectively used in the production of goods
and services.
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60. GDP Deflator:

The ratio of nominal GDP to real GDP, used as a measure of inflation.

61. Government expenditure multiplier:

A numerical coefficient indicating the size of the increase in output resulting from each
unit increase in government spending.

62. Great Depression:

The period of severe economic decline in the 1930s, marked by a significant decrease in
output and a rise in unemployment.

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63. Gross fiscal deficit:

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The excess of total government expenditure over revenue receipts and non-debt capital
receipts.

64. Gross investment:

sa
The addition to capital stock, including replacement for the wear and tear experienced
by the capital stock.
sh
65. Gross National Product (GNP):
The GDP plus net factor income from abroad, representing the aggregate income earned
by all citizens of a country.
us

66. Gross primary deficit:

The fiscal deficit minus interest payments.
ay

67. High-powered money:

The money injected into the economy by the monetary authority, primarily consisting of
@

currency.

68. Imports:
The purchase of goods and services by the domestic country from the rest of the world.

69. Legal tender:

Money issued by the government or monetary authority that cannot be refused as a form
of payment.
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70. Lender of last resort:

The role of the monetary authority in guaranteeing the solvency of commercial banks
during liquidity crises or bank runs.

71. Liquidity trap:

A situation of very low interest rates where individuals expect rates to rise in the future,
causing them to hold their wealth in money rather than investments.

72. Macroeconomic model:

hi
A simplified representation of the functioning of a macroeconomy through analytical
reasoning or mathematical and graphical representation.

ng
73. Managed floating:
A system in which the exchange rate is determined by market forces but is influenced by
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occasional central bank intervention.

74. Marginal propensity to consume:

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The ratio of additional consumption to additional income.

75. Money multiplier:

The ratio of total money supply to the stock of high-powered money in an economy.
us

76. Narrow money:

Currency notes, coins, and demand deposits held by the public in commercial banks.
ay

77. National disposable income:

Net National Product at market prices plus other current transfers from the rest of the
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world.

78. Net Domestic Product (NDP):

The aggregate value of goods and services produced within a country's domestic
territory, excluding the depreciation of capital stock.

79. Net interest payments made by households:

Interest payments made by households to firms minus interest payments received by
households.
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80. Net investment:

The addition to the capital stock that excludes the replacement for the depletion of the
capital stock.

81 .Net National Product (NNP):

Gross National Product (GNP) minus depreciation.

82. Nominal exchange rate:

The price of one unit of foreign currency in terms of the domestic currency.

hi
83. Nominal GDP:
GDP evaluated at current market prices.

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84. Non-tax payments:
Payments made by households to firms or the government as non-tax obligations, such
as fines.
sa
85. Open market operation:
The buying or selling of government securities by the central bank from or to the general
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public in the bond market to adjust the money supply in the economy.

86. Paradox of thrift:

us

The concept that as individuals become more thrifty and save more, aggregate saving
may decrease due to a decrease in consumption and aggregate demand.
ay

87. Parametric shift:

A shift in a graph resulting from a change in the value of a parameter.
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88. Personal Disposable Income (PDI):

Personal Income minus personal tax payments and non-tax payments.

89. Personal Income (PI):

National Income minus undistributed profits, net interest payments made by
households, corporate tax, plus transfer payments to households from the government
and firms.
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90. Personal tax payments:

Taxes imposed on individuals, such as income tax.

91. Planned change in inventories:

Intentional changes in the stock of inventories.

92. Present value (of a bond):

The current value of future income streams promised by a bond, taking into account the
time value of money and discount rate.

hi
93. Private income:
Factor income from net domestic product accruing to the private sector, national debt

ng
interest, net factor income from abroad, current transfers from the government, and
other net transfers from the rest of the world.

94. Product method of calculating national income:

sa
A method of calculating national income by measuring the aggregate value of
production in an economy over a specific period of time.
sh
95. Public good:
Goods or services that are collectively consumed, non-excludable, and non-rivalrous in
nature.
us

96. Purchasing power parity:

A theory stating that the price of similar goods in different countries should be the same
ay

when measured in a common currency.

97. Real exchange rate:

@

The relative price of foreign goods in terms of domestic goods, adjusted for inflation.

98. Real GDP:

GDP is evaluated at constant prices, providing a measure of the real output of an
economy.

99. Statutory Liquidity Ratio (SLR):

The minimum percentage of demand and time deposits that commercial banks are
required by the central bank to invest in specified liquid assets.
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100. Undistributed profits:

Profits earned by private and government-owned firms that are not distributed among
factors of production.

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