economy

Basic Economic Terms & GDP Calculation

Economy: Basic Economic Terms & GDP Calculation

🔷 Why is it Important?

Economy is dynamic, and UPSC often asks conceptual questions.

GDP, Inflation, Fiscal Policy, and Monetary Policy are frequently tested.

Understanding basic economic terms will help in both Prelims & Mains.

🔴 Basic Economic Terms You Must Know

1️⃣ Economy & Its Types

✔ Economy: A system that produces, distributes, and consumes goods and services.

✔ Types of Economy:

Capitalist Economy → Market-driven (e.g., USA, UK).

Socialist Economy → Government-controlled (e.g., North Korea, USSR).

Mixed Economy → Combination of both (e.g., India).

📌 UPSC Focus: India is a Mixed Economy, where both private & public sectors coexist.

2️⃣ Sectors of the Economy

✔ Primary Sector: Agriculture, fishing, forestry, mining.

✔ Secondary Sector: Manufacturing, construction, industries.

✔ Tertiary Sector: Services (banking, IT, transport, education).

✔ Quaternary Sector: Knowledge-based activities (R&D, AI, IT services).

✔ Quinary Sector: High-level decision-making (CEOs, Government Officials).

📌 UPSC Focus: Primary → Secondary → Tertiary is the pattern of economic development.

3️⃣ Factors of Production

✔ Land → Natural resources.

✔ Labour → Human effort (skilled/unskilled).

✔ Capital → Machinery, money, tools.

✔ Entrepreneurship → Innovation, risk-taking.

📌 UPSC Focus: Economic growth depends on efficient use of factors of production.

4️⃣ National Income & Related Terms

✔ GDP (Gross Domestic Product): Total value of all final goods & services produced within India in a year.

✔ GNP (Gross National Product): GDP + Income from Indians abroad – Income earned by foreigners in India.

✔ NNP (Net National Product): GNP – Depreciation (wear & tear of capital goods).

✔ NDP (Net Domestic Product): GDP – Depreciation.

✔ Per Capita Income: GDP / Total Population (Average income per person).

✔ Disposable Income: Income left after taxes for spending & saving.

📌 UPSC Focus: GDP does not include depreciation, while NNP does.

🔴 GDP Calculation Methods

GDP can be calculated using three approaches:

1️⃣ Production Method (Value Added Method)

Measures value addition at each stage of production.

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