Economic Terms & Concepts

A duopoly is a specific type of oligopoly where only two firms dominate the market supply.

Stagflation is an economic condition defined by slow economic growth, high unemployment, and rising prices (inflation).

The Laffer Curve illustrates the theory that there is an optimal tax rate; beyond this point, increasing tax rates actually decreases total government revenue.

Gresham's Law states that 'bad' (debased or undervalued) money drives 'good' (full-bodied) money out of circulation because people hoard the good money.

CAR is a measurement of a bank's available capital expressed as a percentage of its risk-weighted credit exposures.

Disguised unemployment occurs when more people are employed than actually needed, often seen in the agricultural sector where marginal productivity is zero.

The Lorenz Curve is a graphical representation of the distribution of income or wealth within a population.

Repo Rate is the rate at which the central bank (RBI) lends money to commercial banks in the event of any shortfall of funds.

Corporate Tax is a direct tax as it is paid directly by the entity to the government, unlike indirect taxes which are collected from consumers.

Deadweight loss is the loss of total welfare (consumer and producer surplus) due to market inefficiencies, such as price controls or taxes.

OMOs are the market operations conducted by the RBI by way of sale or purchase of government securities to regulate money supply.

The Phillips Curve posits that there is a trade-off between inflation and unemployment; lower unemployment leads to higher inflation.

Fiscal deficit is the gap between the government's total expenditure and its total receipts (excluding borrowings), indicating the total borrowing needs.

Engel's Law is an economic observation that as household income increases, the percentage of income spent on food decreases, even if actual expenditure on food increases.

A public good is non-excludable and non-rivalrous, such as street lights or national defense.

Fiat money is currency that is not backed by a physical commodity (like gold) but by government decree.

Balance of Payments (BoP) is a systematic record of all economic transactions between residents of a country and the rest of the world over a period.

Core inflation removes the volatile components like food and energy prices from the Consumer Price Index (CPI) to reflect long-term trends.

Price elasticity of demand measures how much the quantity demanded of a good responds to a change in the price of that good.

Primary deficit is the fiscal deficit minus interest payments, representing the borrowing required to meet expenses other than interest obligations.

Inflation is the rate of increase in prices over a given period, often caused by an excess supply of money relative to the supply of goods and services.

A Monopsony is a market condition where there is only one buyer for a particular good or service, giving the buyer significant market power.

The Kuznets Curve suggests that as an economy develops, market forces first increase and then decrease economic inequality.

A liquidity trap occurs when people prefer to hold cash rather than invest or spend, even if interest rates are near zero, rendering central bank policy ineffective.

Gresham's Law states that if two forms of commodity money in circulation have similar face value but different intrinsic value, the more valuable money will disappear from circulation.

ECBs are instruments used in India to facilitate access to foreign money by Indian corporations and PSUs.

MPC measures the change in consumption resulting from a change in income.

Crowding-out occurs when increased government borrowing raises interest rates, making it costlier for the private sector to borrow and invest.

Seigniorage is the difference between the face value of money and the cost of producing it.

Veblen goods are luxury items that people buy more of as they become more expensive, as these goods serve as a status symbol.

The Consumer Price Index for Industrial Workers (CPI-IW) is specifically designed to measure price changes affecting industrial laborers.

CVDs are tariffs levied on imported goods to neutralize the negative effects of subsidies provided by the exporting government to its domestic producers.

Deficit financing involves generating money (often through RBI) to fund a budget deficit.

As you add more variable inputs to a fixed amount of land or capital, the marginal increase in output eventually decreases.

A budget surplus occurs when a government's total income exceeds its total expenditure within a financial year.

A progressive tax structure is designed so that the tax rate increases as the taxable amount increases.

Opportunity cost is the benefit that is missed or sacrificed when choosing one alternative over another.

A tariff is a tax imposed by a government on imported goods and services to protect domestic industries.

The Reverse Repo Rate is the interest rate the RBI pays to commercial banks for the deposits they keep with the central bank.

Frictional unemployment is the temporary unemployment that occurs when people are in the process of moving from one job to another.

Stagflation is an economic condition characterized by slow growth and high unemployment (stagnation) along with rising prices (inflation).

The Gini coefficient is a statistical measure of distribution intended to represent the income inequality or wealth inequality within a nation.

The multiplier effect refers to the proportional amount of increase in final income that results from an injection of spending (e.g., government investment).

Base effect refers to the impact of the rise in price level in the previous year on the calculation of inflation rates in the current year.

Moral suasion is a qualitative credit control measure where the central bank uses persuasion, advice, and requests to influence the banking system.

A Giffen good is a low-income, non-luxury product that defies standard economic theory; as the price increases, consumers buy more of it due to the income effect outweighing the substitution effect.

A Tobin tax is a tax levied on short-term currency transactions, originally proposed to reduce speculation in the foreign exchange market.

Revenue deficit is the difference between total revenue expenditure and total revenue receipts of the government.

The J-curve effect describes the tendency of a country's trade balance to initially worsen after currency devaluation before eventually improving.

An oligopoly is a market structure in which a market or industry is dominated by a small number of large sellers.