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GDP, Inflation & Growth

Banking / Economy Awareness · Institutions, Markets & Economy

Useful for: SSC CGL, IBPS Banking, OSSC RHT — Regular High School Teacher, OSSC Economics, OSSSC Govt TGT Arts, SSB Lecturer (Degree Colleges), SSB TGT Arts

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Overview

This topic covers micro concepts (demand, supply, elasticity, markets) and macro concepts (national income, inflation, money) with Indian context.

Key points

GNP = GDP + net factor income from abroad; NNP = GNP − depreciation.
Price elasticity of demand = % change in quantity ÷ % change in price (in absolute value).
Elastic demand: elasticity > 1; inelastic: < 1.
Market forms: perfect competition, monopoly, monopolistic competition, oligopoly.
The 1991 reforms are known as LPG: liberalisation, privatisation, globalisation.

Explanation

Inflation types: demand-pull and cost-push.
RBI tools: repo rate, reverse repo, CRR, SLR, open market operations.
GDP at market prices − net indirect taxes = GDP at factor cost.
Necessities tend to have inelastic demand; luxuries elastic.

Step by step

Identify the concept, rule or constitutional provision involved.
Apply the definition or formula precisely.
Check signs, totals and the direction of the effect.

Examples

GDP 200, net factor income from abroad −5 → GNP 195; depreciation 15 → NNP 180.
Price rises 10% and quantity demanded falls 20% → elasticity = 2 (elastic).
A single seller with no close substitutes → monopoly.

Traps and advanced points

Trap: Adding depreciation instead of subtracting.
Trap: Ignoring the sign of net factor income.
Trap: Calling an elasticity of 0.5 elastic.

Quick revision

GNP = GDP + NFIA; NNP = GNP − D.
Elasticity > 1 elastic.
LPG 1991.

Practice MCQs

Which banking/finance term is best described as: sustained fall in the general price level?
1. IMPS
2. deflation
3. bond
4. equity share
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Answer: (b) deflation. Distinct from disinflation, which is slowing inflation.
Which banking/finance term is best described as: Gross Domestic Product?
1. financial inclusion
2. exchange rate
3. GDP
4. endorsement
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Answer: (c) GDP. Value of final goods and services produced within an economy over a period.
In banking/finance, what does “current account” refer to most accurately?
1. pooled investment vehicle managed according to a stated scheme mandate
2. part of balance of payments covering trade in goods/services, primary and secondary income
3. Equated Monthly Instalment
4. summary indicator derived from credit-history data
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Answer: (b) part of balance of payments covering trade in goods/services, primary and secondary income. Distinct from capital/financial account flows.
Which term-description pair is correctly matched for the concept “exchange rate”?
1. letter of credit — price of one currency in terms of another
2. bond — price of one currency in terms of another
3. exchange rate — pooled investment vehicle managed according to a stated scheme mandate
4. exchange rate — price of one currency in terms of another
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Answer: (d) exchange rate — price of one currency in terms of another. Can move with demand/supply, policy and macro conditions.
Which term-description pair is correctly matched for the concept “GDP”?
1. fiscal deficit — Gross Domestic Product
2. exchange rate — Gross Domestic Product
3. GDP — Gross Domestic Product
4. equity share — Gross Domestic Product
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Answer: (c) GDP — Gross Domestic Product. Value of final goods and services produced within an economy over a period.
GNP equals GDP plus —
1. indirect taxes
2. subsidies
3. depreciation
4. net factor income from abroad
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Answer: (d) net factor income from abroad. GNP = GDP + NFIA.
NNP equals GNP minus —
1. taxes
2. depreciation
3. subsidies
4. exports
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Answer: (b) depreciation. NNP = GNP − depreciation.
Demand is elastic when price elasticity is —
1. negative only
2. less than 1
3. greater than 1
4. zero
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Answer: (c) greater than 1. Elastic > 1.
A market with a single seller is —
1. perfect competition
2. monopoly
3. oligopoly
4. monopolistic competition
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Answer: (b) monopoly. Monopoly.
A market with a few large sellers is —
1. monopoly
2. oligopoly
3. perfect competition
4. barter
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Answer: (b) oligopoly. Oligopoly.