Economy Master - Quick Revision
Economy Master - Quick Revision
One-Liners
- GDP = C + I + G + (X – M) – the total value of goods & services produced inside a country in one year.
- Fiscal Deficit = Total Expenditure – (Revenue Receipts + Non-debt Capital Receipts).
- Repo rate is the rate at which RBI lends short-term money to banks; reverse repo is what RBI pays banks for parking funds.
- Inflation measured by CPI tracks retail price changes for a consumer basket; WPI tracks wholesale prices.
- NABARD is the apex institution for agricultural & rural credit, formed in 1982.
- SEZ policy 2000 offers tax holidays to boost exports & employment.
- GST (1 July 2017) replaced 17 indirect taxes with one unified indirect tax regime.
- FRBM Act 2003 targets to keep fiscal deficit ≤ 3 % of GDP & eliminate revenue deficit.
- HDI by UNDP ranks nations on life expectancy, education & per-capita income.
- LPG reforms 1991 = Liberalisation, Privatisation, Globalisation to end Licence Raj.
- MSME ceiling (2020): micro ≤ ₹5 cr, small ≤ ₹50 cr, medium ≤ ₹250 cr investment.
- Priority-sector lending norm for domestic banks: 40 % of ANBC must go to agri, MSME, weaker sections.
- Current account deficit (CAD) = (Trade deficit) + (invisible payments > receipts).
- SLR is the % of NDTL banks must keep in safe liquid assets; CRR is the % kept cash with RBI (no interest).
- Base-year for GDP & IIP revised to 2011-12; for CPI to 2012.
- Insolvency & Bankruptcy Code 2016 resolves defaults within 180-330 days.
- MUDRA loans (Shishu-Kishore-Tarun) finance micro-units up to ₹10 lakh.
- Direct Benefit Transfer (DBT) uses Aadhaar to cut subsidy leakage.
- Ease of Doing Business rankings by World Bank Group (now B-Ready); India 63rd in 2020.
- 15th Finance Commission (2021-26) recommends 41 % devolution of central taxes to states.
Formulas/Rules
| Formula | Use |
|---|---|
| GDPmp = GDPfc + Indirect Taxes – Subsidies | Convert factor-cost GDP to market-price |
| GNP = GDP + Net Factor Income from Abroad | Add income earned by residents abroad |
| Fiscal Deficit % = (Fiscal Deficit ÷ Nominal GDP) × 100 | Track fiscal health limit (FRBM 3 %) |
| Revenue Deficit = Revenue Expenditure – Revenue Receipts | Measures govt. borrowing for daily needs |
| Primary Deficit = Fiscal Deficit – Interest Payments | Shows fresh borrowing excluding interest |
| Money Multiplier = 1 ÷ CRR (in decimal) | Estimate deposit expansion possible |
| Real GDP = (Nominal GDP ÷ Price Index) × 100 | Remove inflation effect |
| CAD $ = (Imports – Exports) + Net Invisibles | Gauge external balance pressure |
| Tax Buoyancy = (% Δ Tax Revenue) ÷ (% Δ GDP) | Check tax elasticity |
| Gini Coefficient = 0 (perfect equality) to 1 (max inequality) | Measure income inequality |
Memory Tricks
- “CIG(X-M)” – Cigarette smoke makes GDP: Consumption, Investment, Government, eXports minus iMports.
- “REVENUE is for DAILY needs” – Revenue Deficit = Revenue Expenditure minus Revenue Receipts.
- “SLR = Safe Liquid Ratio” – Statutory Liquidity Ratio keeps assets Safe & Liquid.
- “GST is 1-7-17” – Launched 1 July 2017, subsumed 17 taxes.
- “FPI flies fast, FDI stays long” – Foreign Portfolio Investment (hot money) vs Foreign Direct Investment (stable).
Common Errors
| Error | Correct |
|---|---|
| Confusing GNP with GDP | GNP includes net income from abroad; GDP is domestic only |
| Calling every tax indirect under GST | GST covers only indirect taxes; direct taxes (IT, Corp-tax) stay outside |
| Using WPI for consumer inflation | Use CPI for retail/consumer inflation, WPI for wholesale |
| Listing NITI Aayog as constitutional body | NITI Aayog is an executive body; Planning Commission was replaced in 2015 |
| Assuming higher repo rate always bad | Higher repo = RBI fighting inflation, may slow growth but curb prices |
5 Quick MCQs
Show Questions
Q1. Which of the following is NOT included while estimating national income by income method?
a) Salaries
b) Rent
c) Pension paid by govt.
d) Sale of second-hand goods
Ans: d) Sale of second-hand goods
Q2. The base year for the new CPI (combined) series released by CSO is:
a) 2004-05
b) 2010-11
c) 2012
d) 2011-12
Ans: c) 2012
Q3. If CRR is 4 %, the theoretical maximum value of money multiplier is:
a) 4
b) 25
c) 0.04
d) 20
Ans: b) 25
Q4. Which committee recommended the introduction of GST in India?
a) Narasimham
b) Rangarajan
c) Kelkar
d) Chelliah
Ans: d) Chelliah (Dr. Raja Chelliah Tax Reform Committee)
Q5. An increase in the repo rate by RBI generally leads to:
a) Cheaper home loans
b) Rise in aggregate demand
c) Fall in inflation
d) Increase in fiscal deficit
Ans: c) Fall in inflation
BETA
