Economics - 72nd BPSC Prelims Lecture Notes

Essential vocabulary flashcards covering monetary theory, central banking, fiscal policy, taxation, inflation metrics, external trade, labor economics, poverty indices, and planning institutions for the 72nd BPSC Prelims.

Token Money

A form of currency whose face value or nominal value is greater than its intrinsic paper or metal value.

Fiduciary Money

Money whose acceptance and circulation rely upon the mutual trust reposed in the credit or promise of the issuer.

Fiat Money

Currency issued by government decree or order of the state under the law of the land, lacking intrinsic value or backing by a physical commodity.

Limited Legal Tender

Legal currency that a creditor is legally bound to accept only up to a prescribed maximum threshold, such as coins under the Coinage Act.

Central Bank Digital Currency (CBDC)

A digital token money issued by the Reserve Bank of India that can be programmed for specific purposes, introduced in wholesale and retail formats.

Money Supply

The total stock of money held by the public in disposable form at a specific point in time, excluding cash held by the banking system and the government.

Reserve Money ($M_0$)

Primary or high-powered money published by the RBI, calculated as currency in circulation plus bankers' deposits with the RBI plus other deposits with the RBI ($M_0 = C + BD + OD$).

Money Multiplier

The ratio of broad money to reserve money ($\frac{M_3}{M_0}$), representing the commercial banking system's capacity for credit creation.

Hilton Young Commission

The Royal Commission on Indian Currency and Finance (1926) whose recommendations led to the enactment of the RBI Act in 1934 and the establishment of the Reserve Bank of India.

Minimum Reserve System

The currency issuance mechanism adopted by the RBI in 1956 requiring backing of at least $₹200\text{ crore}$, consisting of $₹115\text{ crore}$ in gold and $₹85\text{ crore}$ in foreign securities.

Cash Reserve Ratio (CRR)

The designated fraction of Net Demand and Time Liabilities (NDTL) that commercial banks must maintain as cash with the RBI under the RBI Act, 1934, on which no interest is earned.

Statutory Liquidity Ratio (SLR)

The proportion of Net Demand and Time Liabilities (NDTL) that banks must keep with themselves in cash, gold, or approved government securities under the Banking Regulation Act, 1949, subject to an upper limit of $40\%$.

Bank Rate

The long-term discount rate at which the RBI lends to banks or rediscounts commercial bills, also serving as a penal rate when banks fail to meet their reserve ratios.

Repo Rate

The key policy rate introduced under the Liquidity Adjustment Facility (LAF) at which the RBI injects short-term liquidity into commercial banks against approved government securities.

Standing Deposit Facility (SDF)

An overnight liquidity absorption tool introduced in April 2022 that allows eligible banks to park surplus funds with the RBI without the provision of collateral securities.

Marginal Standing Facility (MSF)

An overnight penal lending window instituted in 2011 enabling scheduled commercial banks to borrow up to $2\%$ of their NDTL from the RBI by dipping into their SLR quota.

Open Market Operations (OMO)

The buying and selling of government securities, shares, or gold by the central bank in the open secondary market to regulate liquidity volumes.

Monetary Policy Committee (MPC)

A 6-member statutory body constituted under Section 45ZB of the RBI Act, 1934, based on the Urjit Patel Committee recommendations to fix the policy repo rate required to maintain the inflation target ($4\% \pm 2\%$).

Effective Revenue Deficit

A deficit measure formulated by the C. Rangarajan Committee, computed as the Revenue Deficit minus grants-in-aid given for the creation of capital assets.

Fiscal Deficit

Total government expenditure minus total non-debt-creating receipts, introduced based on the recommendations of the Sukhamoy Chakravarty Committee (1985).

Primary Deficit

The fiscal deficit minus net interest payments, conceptualized by Dr. Manmohan Singh to evaluate the current year's fiscal imbalance independent of past borrowing liabilities.

Digressive Taxation

A taxation system where the tax rate increases progressively as income rises up to a specific limit, after which it remains uniform and proportional.

Cess

An earmarked tax-on-tax imposed by the Central Government on direct or indirect taxes to generate funds for a specific objective, which is excluded from the divisible tax pool.

Surcharge

An additional levy imposed exclusively on taxable income under direct taxes by the Central Government without a dedicated expenditure mandate.

Goods and Services Tax (GST)

A comprehensive destination-based indirect tax levied at the point of consumption on the supply of goods and services (excluding alcohol for human consumption), enacted under the 101st Constitution Amendment Act, 2016.

Disinflation

A macroeconomic condition characterized by a slowing down of the rate of inflation, where general price levels continue to rise but at a diminishing pace.

Skewflation

A sustained price inflation confined to one or a small group of economic sectors, while general price levels elsewhere in the economy remain largely stable.

Core Inflation

A measure of underlying inflation developed by Otto Eckstein in 1981, calculated by stripping out volatile price components (food and energy) from headline inflation.

Stagflation

An anomalous economic situation featuring stagnant economic growth, high unemployment, and high inflation occurring simultaneously.

Purchasing Power Parity (PPP)

An exchange rate hypothesis formulated by Gustav Cassel that equates the values of different currencies based on the relative cost of an identical basket of tradable and non-tradable goods.

Nominal Effective Exchange Rate (NEER)

The trade-weighted geometric average of bilateral nominal exchange rates of the domestic currency against a representative basket of foreign currencies.

Disguised Unemployment

A condition identified by Joan Robinson, prevalent in rural agriculture, where excess labor is engaged in production but the marginal productivity of the surplus workers is zero.

Frictional Unemployment

Temporary, voluntary unemployment experienced by individuals during the transition period between leaving one job and finding another.

Structural Unemployment

Long-term unemployment resulting from fundamental mismatches between the skills of the labor force and the technological or capital requirements of employers.

Absolute Poverty

A condition marked by severe deprivation of basic human survival needs (food, drinking water, sanitation, shelter, health) below a set minimum threshold or poverty line.

Relative Poverty

A condition in which individuals or households lack the minimum level of income or resources needed to participate in the standard economic and social life of their community.

Multidimensional Poverty Index (MPI)

An international poverty measure developed by OPHI and UNDP using the Alkire-Foster method, tracking deprivations across 3 dimensions (Health, Education, Living Standards) and 10 indicators.

NITI Aayog

The premier policy think tank of the Government of India established on 1 January 2015 to replace the Planning Commission, designed to foster cooperative federalism through bottom-up planning.