Basic Concepts of Economy
GDP, Inflation, Budget - Essential for SSC GD Exams
Introduction
The economy of a country deals with the production, distribution, and consumption of goods and services. For SSC GD, understanding GDP, Inflation, and Budget is very important because these concepts are asked almost every year.
1. What is GDP?
Definition
GDP stands for Gross Domestic Product. It is the total value of all final goods and services produced inside a country in one year.
GDP tells us how big and strong a country's economy is.
Simple Definition
GDP is the total money value of everything produced within a country in one year.
2. Types of GDP
Nominal GDP
Measured at current market prices. It includes the effect of inflation.
Real GDP
Measured at constant prices. It removes the effect of inflation and shows the true growth of the economy.
GDP Per Capita
GDP divided by total population. It shows average income per person.
3. GDP Growth Rate
The percentage increase in GDP compared to the previous year is called the GDP growth rate.
Example:
If GDP grows from 200 lakh crore to 210 lakh crore, growth rate = 5 percent.
4. GNP, NNP, NDP (Related Terms)
GNP
GDP + Income earned by Indians abroad - Income earned by foreigners in India.
NNP
GNP - Depreciation (wear and tear of machines).
NDP
GDP - Depreciation.
5. National Income
Definition
The total income earned by all residents of a country in one year.
Three Methods of Calculation
- Production method
- Income method
- Expenditure method
6. Inflation
Definition
Inflation means a continuous increase in the prices of goods and services over time.
When inflation rises, purchasing power of money falls.
Simple Definition
Inflation is a general rise in prices.
7. Types of Inflation
Demand-Pull Inflation
When demand is more than supply.
Cost-Push Inflation
When production cost increases (like fuel, raw materials).
Imported Inflation
When price of imports increases.
Core Inflation
Excludes food and fuel prices.
8. Measurement of Inflation in India
WPI (Wholesale Price Index)
- Measures price change at wholesale level
- Published by Office of Economic Advisor
CPI (Consumer Price Index)
- Measures price change at retail level (used for RBI decisions)
- Published by National Statistical Office (NSO)
CPI is more important for SSC exams.
9. Deflation, Stagflation, Reflation
Deflation
Continuous fall in prices.
Stagflation
Inflation + Slow economic growth + High unemployment.
Reflation
Government tries to boost demand by lowering taxes or increasing spending.
10. What is Budget?
Definition
Budget is a financial statement showing estimated receipts and expenses of the government for the coming year.
Key Information
- Presented by: Finance Minister
- Presented on: 1 February every year
11. Types of Government Budget
Balanced Budget
Income = Expenditure
Surplus Budget
Income > Expenditure
Deficit Budget
Expenditure > Income (Most common type)
12. Components of Budget
Revenue Budget
Includes:
- Revenue Receipts (tax and non-tax)
- Revenue Expenditure
Capital Budget
Includes:
- Capital Receipts (borrowings, loans)
- Capital Expenditure (infrastructure, assets)
13. Types of Taxes
Direct Taxes
Paid directly to the government.
Examples: Income Tax, Corporate Tax
Indirect Taxes
Paid through goods and services.
Examples: GST (Goods and Services Tax)
14. Fiscal Policy
Fiscal Policy refers to government taxation and spending policies.
Made by:
Ministry of Finance
Used for:
- Controlling inflation
- Boosting growth
- Creating jobs
15. Monetary Policy
Monetary Policy is used by RBI to control money supply and interest rates.
Main tools:
- Repo Rate
- Reverse Repo Rate
- Bank Rate
- CRR (Cash Reserve Ratio)
- SLR (Statutory Liquidity Ratio)
16. Fiscal Deficit
Fiscal Deficit = Total Expenditure - Total Income (except borrowings)
Shows how much government needs to borrow.
17. Economic Terms Frequently Asked in SSC GD
Black Money
Money earned illegally or not reported for tax.
Subsidy
Financial support given by government.
Disinvestment
Selling government shares in public sector companies.
Economic Survey
Annual report on economy published before Budget.
FDI (Foreign Direct Investment)
Foreign investment in business, factories, real estate.
PPP (Public-Private Partnership)
Government + private sector working together on projects.
18. Quick Revision Table
| Topic | Key Points |
|---|---|
| GDP | Total value of goods/services produced in India |
| Real GDP | Adjusted for inflation |
| Inflation | Rise in prices |
| Measured by | CPI and WPI |
| Budget | Annual financial statement |
| Fiscal Policy | Govt income and spending |
| Monetary Policy | Controlled by RBI |
| Fiscal Deficit | Govt borrowings requirement |
19. Memory Tricks for SSC GD
GDP Types
Nominal = Now
Real = Removed inflation
Inflation Index
CPI = Consumers
WPI = Wholesale
Budget Types
Balanced = Equal
Surplus = Extra
Deficit = Demand more
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