ECONOMIC TERMS

Author - LAWGICA

Uploaded on March 10, 2021

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GDP: Gross Domestic Product (GDP) is the total value of goods and services produced in a country in one year. GDP refers to the value of goods produced within the geographical territory of a country irrespective of whether they are produced by citizens or foreigners. In 2019, GDP in India was at around 2.59 trillion U.S. dollars.

GNP: Gross National Product (GNP) is the total value of the goods and services produced by a country’s citizens or companies in one year irrespective of their geographic location. India gnp for 2019 was $2,893.21B, a 6.61% increase from 2018

NDP: Net Domestic Product: NDP = GDP – Depreciation

NNP: Net National Product: NNP = GNP – Depreciation

Depreciation: A decrease in the value of an asset over time due to wear and tear.

Monetary Policy: Process by which the central bank in a country controls the supply of money. In India, the central bank is the Reserve Bank of India (RBI). Repo, Reverse Repo, CRR, SLR etc are part of monetary policy.

REPO rateRe Purchase Option (REPO): Rate at which the RBI gives loans to other banks. REPO means Re Purchase Option – the rate by which RBI gives loans to other banks. Bank re-purchase the securities deposited with RBI at the REPO rate. The present rate is 5.15%.

Reverse REPO rate: RBI at times borrows from banks at a rate lower than REPO rate, and that rate is known as Reverse REPO rate (now 4%). REPO and Reverse Repo are two major options under LAF (Liquidity Adjustment Facility). RRR=4.9%

CRR: Cash Reserve Ratio (CRR): The percentage of liquid cash every bank has to keep with the RBI. It is a percentage of their deposits. CRR is 4% 

SLR: Statutory Liquidity Ratio (SLR): The percentage of liquid cash reserves every bank has to keep with themselves. 18%

MSF: Marginal Standing Facility (MSF): The rate at which banks can borrow overnight funds from RBI against the approved government securities. Here, the borrowing limit is 2% of the banks’ Net Demand and Time Liabilities (NDTL). The marginal standing facility (MSF) rate and the Bank Rate stand at 4.25%

Bank Rate: Higher rate (than the REPO rate) at which the RBI gives loans to other banks. A higher bank rate would mean higher lending rates by banks. The RBI can raise the bank rate to check liquidity. Here there is no 2% of NDTL limit.

CRAR: Capital to Risk-Weighted Assets Ratio (CRAR): The ratio of a bank’s capital to its risk.

Fiscal Policy: The policy of a government by which it adjusts the tax rates and spending levels to influence the national economy.

Fiscal Deficit: It is the difference between the government’s total expenditure and its total receipts (excluding borrowing). A fiscal deficit occurs when this expenditure exceeds the revenue generated.

Balance of Payments (BOP): It is the difference in total value between payments into and out of a country over a period.

Balance of Trade (BOT): It is the difference between a country’s imports and exports for a time period. The BOT is a part of the BOP.

Capital: It is the sum of money invested in a business to generate a profit.

Carbon Tax: It is an environmental tax imposed on products that use carbon-based materials and cause greenhouse pollution. Currently the carbon tax stands at 400rs per tonne

Inflation: The rate at which the prices of goods and services rise in a country. Thus, it causes a fall in the purchasing power of the currency.

Depression: It is a prolonged and severe downturn in the economic activity of a country. It is more severe than a recession.

FDI: Foreign Direct Investment (FDI): It is an investment made by a company or an individual in one country in business interests in another country. RBI controls FDI.

Free Trade Agreement: It is an agreement between two or more countries that eliminates trade tariffs between the countries and also tries to reduce non-trade barriers to trade between the countries.

Progressive Tax: A country’s tax rates are said to be progressive when the tax rates increase as the taxable amounts increase.

Tariff: It is the tax imposed on imported goods and services. So, tariffs make imported goods costlier.

SEZ: Special Economic Zone (SEZ): It is a zone or an area in a country where there are separate business and trade laws as compared to the rest of the country. They are created to increase trade and investment and to create employment opportunities.

Opportunity Cost: It is defined with respect to a particular value or action and is equal to the value of the foregone alternative choice or action.

Permit License Raj: A term used to denote the rules and regulations framed by the government to start, run and operate an enterprise for production of goods and services in India.

Quantitative Restrictions: Restrictions in the form of total quantities or quotas imposed on imports to reduce balance of payments (BOP) deficit and protect domestic industry.

Special Economic Zones: It is a geographical region that has economic laws different from a country’s typical economic laws. Usually the goal is to increase foreign investment. Special Economic Zones have been established in several countries, including the People’s Republic of China, India, Jordan, Poland, Kazakhstan, the Philippines and Russia.

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