Maths Mania

ECONOMICS

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 MICROECONOMICS AND MACROECONOMICS

Microeconomics Macroeconomics
Studies individual economic units like Deals with the economy as a whole,
consumers, firms, and markets. including national income, inflation,
Focuses on demand and supply, price and policies.
determination, consumer behavior,
and production.

Father of Microeconomics – Father of Macroeconomics – John

Maynard Keynes(from england)
Adam Smith
(wrote – "The General Theory of
(wrote – “The Wealth of
Employment, Interest, and
Nations.”)
Money.")

DIFFERENT SECTORS OF THE ECONOMY

Primary Sector Secondary Sector
(Agricultural Sector) (Manufacturing Sector)

RED COLLAR JOBS BLUE COLLAR JOBS

Involves natural resources like Includes manufacturing and industries.
agriculture, fishing, mining. Importance: Value addition,
Importance: Provides raw materials, industrialization, employment
employment, and food security. generation.

Tertiary Sector Quaternary & Quinary Sectors

(Service Sector) (Knowledge Sector)

WHITE COLLAR JOBS GOLD COLLAR JOBS

Comprises services like banking, transport, Quaternary – Knowledge-based
education, healthcare. activities like IT, research, consultancy.
Importance: Enhances efficiency, Quinary – High-level decision-making
contributes to GDP, supports other sectors. like government, top executives.

Sector GDP Contribution Employment Contribution

Primary 18-20% 50%

Secondary 27-30% 24%

Tertiary 55-60% 26%

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 TYPES OF ECONOMIC SYSTEMS :-
Private ownership of resources, minimal
Capitalist Economy
government interference.
Examples: USA, UK.
Adam Smith's "The Wealth of Nations" primarily supports a capitalist economic
model. (Laissez Faire policy – no intervention of Govt. in economy – Free economy )

Government controls production and distribution,

Socialist Economy
aiming for equal wealth distribution.
Examples: China, North Korea.

Combination of both capitalist and socialist

Mixed Economy
features, with government and private sector roles.
Examples: India, France

Based on customs, traditions, and barter system,

Traditional Economy
with minimal use of money.
Examples: Some tribal societies in Africa and Asia.

PROBLEMS OF AN ECONOMY-
What is an Economy?
A system that manages production, distribution, and consumption of
goods/services.

Basic Problems of an Economy:-

Every economy faces three fundamental problems due to limited resources
and unlimited wants:

1. What to produce?
Choosing between essential goods (like food, clothes) and luxury
goods (like cars, electronics)
2. How to produce?
Deciding between labour-intensive (more workers) and capital-intensive
(more machines) methods.
3. For whom to produce?
Determining the distribution of goods among rich and poor.

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 Production Possibility Curve (PPC)
A curve showing the maximum possible
production of two goods using available
resources efficiently.
Key Concepts :
Opportunity Cost: The loss of one good to
produce more of another.
Efficiency & Inefficiency: Points on PPC show
full use of resources; inside PPC shows
underutilization; beyond PPC is impossible with
current resources.
Shifts in PPC: More resources or better technology shift PPC outward.

Demand and Supply Curves

Demand Curve :-
Law of Demand: If the price of a good falls,
demand increases; if price rises, demand
decreases.
Factors Affecting Demand: Price, income,
consumer preferences, prices of related goods
(substitutes & complements).
Shift in Demand Curve: Caused by non-price
factors like income, trends, or government
policies.

Supply Curve :-
Law of Supply: As price rises, supply
increases; as price falls, supply decreases.
Factors Affecting Supply: Production
cost, technology, government policies
(taxes, subsidies).
Shift in Supply Curve: Changes in
production costs or better technology shift
supply.

Utility & Marginal Utility (MU)

Utility: Satisfaction from consuming a good or service.
Total Utility (TU): Total satisfaction from all units consumed.
Marginal Utility (MU): Additional satisfaction from consuming one more unit.
Example - Eating one chocolate gives high satisfaction, but the second gives less, and the
third even less. This decreasing extra satisfaction is marginal utility.

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 Law of Diminishing Marginal Utility

As a person consumes more units of a good, the extra satisfaction from each
additional unit decreases.
Example: First slice of pizza gives the highest satisfaction, but the next slices
give lesser joy.
Importance: Explains why consumers buy fewer units at higher prices (basis
of Law of Demand).

Price Elasticity of Demand (PED)

Measures how demand responds to price changes.
Formula: PED = % Change in Quantity Demanded / % Change in Price

TYPES:-

Elastic (>1): Inelastic (<1): Unitary (=1):

Large change in demand Small change in Equal change in
when price changes demand when price demand and price.
(luxury items like air changes (essential goods
conditioners). like salt, medicines).

Determinants: Availability of substitutes, nature of the good (necessity vs.

luxury), time period.

TYPES OF ATYPICAL GOODS AND THEIR DEMAND BEHAVIOR

INFERIOR GOODS GIFFEN GOODS VEBLEN GOODS

Goods for which demand A special type of inferior Luxury goods where
decreases as income rises good where demand higher prices make them
(e.g., low-quality rice). increases when price more desirable as a
When price falls, demand rises, due to strong status symbol (e.g.,
income effects (e.g.,
increases, and vice versa. designer bags). Demand
staple foods like bread in
increases as price rises.
poverty).

MARGINAL PROPENSITY TO CONSUME (MPC):

It is the fraction of additional income that is spent on consumption. Formula:
MPC = ΔC / ΔY (Where ΔC = Change in consumption, ΔY = Change in income.)

MARGINAL PROPENSITY TO SAVE (MPS):

It is the fraction of additional income that is saved. Formula:
MPS = ΔS / ΔY (Where ΔS = Change in savings.)

RELATION:

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MPC + MPS = 1 (0 ≤ MPC/MPS ≤ 1)
Higher MPC leads to a higher investment multiplier, impacting economic growth.

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 INVESTMENT MULTIPLIER :
It shows the relationship between an initial investment and the resulting total
increase in income or output. It is based on the concept that an increase in
investment leads to a greater final increase in income.
FORMULA:-
Investment Multiplier (k) = 1 / (1 - MPC) or 1/MPS
Key points:
A higher MPC leads to a higher multiplier.
The multiplier effect works through increased consumption due to income generated
by the initial investment.
It highlights the importance of investment in boosting economic activity.

NATIONAL INCOME /GDP/GNP Financial year

It is the total value of all goods and services produced by a (1st April - 31st March)
country over a specific period, including income from abroad.

GDP
Components of GDP:
Gross: Refers to the total or sum of all.
Domestic: Indicates measurement within the Indian domestic boundary.
Product: Includes both goods and services, representing the final monetary
value.
Measurement: Conducted within the Indian domestic boundary.

INDIAN DOMESTIC BOUNDARY

Entire Indian Territory: Includes 28 states and 8 UT’s.

Air boundary (Karman Line) : 100 km above the earth surface
Water Boundary: 12 nautical miles from coastline
Exclusive Economic Zones (EEZs): Extends up to 200 nautical miles from the coast

PRODUCTION SOURCES:

Goods and Services: Produced by both Indian and foreign producers within
the Indian boundary.
Producers:
Companies
Individuals
The top five countries by GDP are
USA > China > Germany > Japan > India

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 CONVERSION FORMULA
G to N G - Depreciation

D to N D - Indirect Taxes + Subsidies

FC to MP FC + Indirect Taxes - Subsidies

Note:
G stands for Gross, and N stands for Net.
D stands for Domestic.
FC stands for Factor Cost, and MP stands for Market Price.
Indirect Taxes typically include taxes such as VAT, GST, etc., while
Subsidies are financial aid provided by the government.

AGGREGATE FORMULA COMPONENTS

GDP
Sum of all goods and services Production within
(Gross Domestic
produced within a country national borders
Product)

NFIA Factor income received from Income from

(Net Factor Income abroad - Factor income paid international investments
from Abroad) to abroad and payments

GNP
GDP plus net income
(Gross National GDP + NFIA
from abroad
Product)

NNP
GNP minus value loss of
(Net National GNP - Depreciation
capital assets over time
Product)

NI NNP - Indirect Taxes + NNP adjusted for taxes

(National Income) Subsidies and subsidies

NI - Corporate Taxes -
PI National Income adjusted
Retained Earnings + Transfer
(Personal Income) for individual gains
Payments

DPI
Personal Income minus
(Disposable PI - Personal Taxes
personal taxes
Personal Income)
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 National Income (N.I.) :-
N.I. is denoted by NNPFC where:
NNP stands for Net National Product
FC stands for Factor Cost
(Domestic income – NDPFC)

BASE YEAR :
It is a specific year chosen as a point of reference or benchmark for economic
measures, such as GDP, inflation, and price indices, to compare changes in
economic performance over time. It serves as the starting point for calculating real
values and measuring economic growth.(current base year 2011-12)

DIFFERENCE BETWEEN REAL GDP AND NOMINAL GDP

REAL GDP NOMINAL GDP

Definition: Definition:
Measures GDP at constant Measures GDP at current market
prices (adjusted for inflation). prices (includes inflation).

Price Base: Price Base:

Uses base-year prices. Uses current-year prices.
Inflation Effect: Inflation Effect:
Removes the effect of inflation. Includes inflation, making it appear
higher.
Formula: Formula:
Real GDP = (Nominal GDP / Nominal GDP = ∑ (Price ×
Price Index) × 100 Quantity) for the current year
Indicator of Economic Welfare: Indicator of Economic Welfare:
Better indicator as it reflects Less accurate due to inflation
actual production. impact.

Key Insight: Real GDP is preferred for measuring true economic growth,
while nominal GDP is useful for understanding short-term economic trends.

GDP DEFLATOR -
The GDP deflator measures the price level of all final goods and services in
an economy, showing inflation or deflation.

(NOTE -It measures the price level of goods and services produced in the
current financial year i.e. from 1st April to 31st March )

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 CIRCULAR FLOW OF INCOME
The circular flow of income illustrates the
movement of money, resources, and
goods/services between different sectors
of the economy.

The circular flow of income explains

money movement in an economy and
links to GDP calculation through:

1. Product Method: GDP = Total value of goods/services produced.

2. Income Method: GDP = Total income (wages, rent, interest, profits).
3. Expenditure Method: GDP = C + I + G + (X - M) (Consumption, Investment,
Government spending, Net exports).

Total income = Total spending = Total output. Leakages (savings, taxes, imports) and
injections (investment, government spending, exports) affect GDP.

METHODS OF CALCULATING GDP

Gross Domestic Product (GDP) can be measured using three approaches:

PRODUCTION METHOD (VALUE ADDED METHOD)
Measures GDP by calculating the net value added at each stage of production.
Formula:
GDP = (Value of Output) - (Value of Intermediate Goods)
Steps:
a. Calculate the gross value of output (total sales + change in stock).
b. Subtract intermediate consumption (raw materials, semi-finished goods).
Used to measure sectoral contributions (agriculture, industry, services).

INCOME METHOD
Measures GDP by summing up incomes earned in production.
Formula:
GDP = Compensation of Employees + Rent + Interest + Profit + Mixed Income
Includes:
Wages and salaries (labour income)
Rent (for land use)
Interest (on capital)
Profits (entrepreneurs’ earnings)
Mixed income (self-employed earnings)

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 EXPENDITURE METHOD
Measures GDP by summing total expenditure on final goods and services.
Formula:
GDP = C + I + G + (X - M)
where,
C = Private consumption
I = Investment (capital formation)
G = Government expenditure
(X - M) = Net exports (exports - imports)

Each method provides the same GDP value if calculated correctly. The choice
depends on data availability and economic analysis requirements.

BUDGET AND TAXATION

Article 112 – Annual Financial Statement ( Budget word not mentioned in
constitution)
Presented on February 1 of each year from 2017-18 ( prior to 2017-18 it was
presented on last week of February)
Railway budget was merged in 2017 ( on recommendation of Bibek Debroy
Committee)
Budget is prepared by – Dept. of Economic affairs ( Ministry of Finance)
1st Budget was presented on 26 Nov 1947 by R.K Shanmukham Chetty ( 1st Finance
Minister)
Maximum no. of budget presented by a finance minister – Morarji Desai ( 10 times)
1st paperless budget – 2021-22
Interim budget is presented during the election year.

REVENUE BUDGET

Revenue Receipts Revenue Expenditure

Tax Revenue Non-Tax Revenue

Developmental Non-
Income Tax Interest Receipts
Expenditure Developmental
Corporate Tax Dividends and
Education Expenditure
Customs Duties Profits
Healthcare Interest
Excise Duties Fees and Fines
Infrastructure Payments
Goods and Grants and Aid
Development Subsidies
Services Tax
Administrative
(GST) PENSION AND Expenses
SALARIES

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 CAPITAL BUDGET

Capital Receipts Capital Expenditure

Recovery of Loans Disinvestment Asset Creation Repayment of

Repayment of Loans Sale of Government Land Loans
Granted by the Equity in Public Acquisition Principal Payment
Government Sector Enterprises Building of Loans Taken by
Infrastructure the Government
Loans Machinery and
Domestic Borrowings Equipment
Foreign Borrowings

FORMULA DESCRIPTION

Budget Deficit Budget Deficit = Total Expenditures - Total Revenue

Primary Deficit Primary Deficit = Budget Deficit - Interest Payments

Revenue Deficit = Revenue Expenditure - Revenue

Revenue Deficit
Receipts

Fiscal Deficit = Total Expenditure - Total Revenue

Fiscal Deficit
(Excluding Borrowings)

Effective Revenue Deficit = Revenue Deficit - Grants for

Effective Revenue Deficit
Creation of Capital Assets

Gross Fiscal Deficit = Total Expenditure - (Revenue

Gross Fiscal Deficit
Receipts + Non-debt Capital Receipts)

Net Fiscal Deficit Net Fiscal Deficit = Gross Fiscal Deficit - Net Lending

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 Balanced Budget

TYPES OF
BUDGETS
Total Receipts = Total Expenditure
Surplus Budget
Total Receipts > Total Expenditure
Deficit Budget
Total Expenditure > Total Receipts
TAXATION
Regressive Tax: A tax where the rate decreases as the
income increases, affecting lower-income earners more.
Example: Sales tax on essential goods.
Progressive Tax: A tax where the rate increases as the income increases, placing
a higher burden on wealthier individuals. Example: Income tax with higher rates
for higher income brackets. (INDIA primarily follows this system for direct taxes
like income tax).
Proportional Tax (Flat Tax): A tax where the rate remains constant regardless
of income level, taxing everyone at the same rate. Example: Flat income tax rate
of 10% for all income levels. (GST).

Levied directly on individuals and businesses

DIRECT TAX

EXAPMLES
Income tax
Corporate tax
Capital gains tax
Securities transaction tax
Professional tax
Gift tax / wealth tax / fringe benefits tax ( repealed by govt.)

Levied on goods and services, paid indirectly by consumers

INDIRECT TAX

EXAMPLES
Custom Duty on Export-Import
GST ( Goods & Service Tax )
Introduced by 101 CAA in 2016 ( Enforced – 1 july INDIRECT
2017) TAX
Consumption & destination based tax
GST Slabs – 0 %, 5%, 12%, 18%, 28%.
GST Council ( 279A )
Appointed by President of India
Chairperson – Minister of Finance(GOI)
Vice – chairperson – Minister of Finance of any state
33 Members= 2 from Centre + 31 from States/UTs + Minister of
finance of all states + Minister of Finance of 3 UTs (Delhi,
Puducherry and J&K) + Union Minister of State for Finance(GOI)
Voting rights – 1/3 – Related to Govt. of India
2/3 - Related to State Governments

Types of GST :-
Central GST (CGST) – GOI’s share in GST
State GST (SGST) – State Govt. share in GST

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Integrated GST (IGST) – on Export – import & Inter – state trade

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 LAFFER CURVE –
It shows the relationship
between tax rates and
government tax revenue.
(Bell shaped curve)

Some other taxes :

Surcharge: An additional charge on the income tax for individuals or entities earning
above a certain threshold.
Cess: A tax on tax, levied for a specific purpose, such as education or health
Pigouvian tax: a tax imposed on activities that generate negative externalities to
correct market outcomes.

Note:- FRBM Act 2003 [Fiscal Responsibility & Budget Mgmt.] – Aims to ensure
responsible fiscal management by reducing the fiscal deficit, improving transparency.

MONEY AND BANKING

FUNCTIONS OF MONEY
➢ Medium of Exchange: Money is widely accepted in exchange for goods and services.
➢ Store of Value: Money retains value over time, allowing individuals to save for
future use.
➢ Unit of Account: Money provides a standard measure for pricing goods and
services.
➢ Standard of Deferred Payment: Money is used to settle debts payable in the future

TYPES OF MONEY

Fiat Money: Fiduciary Money: Commodity Money:

Money that has no Money that is accepted Money that has
intrinsic value but is based on trust between intrinsic value and
established as legal parties rather than its can be used as a
tender by government intrinsic value, such as commodity, like gold
decree, like paper cheques, promissory or silver.
currency. notes, bitcoins, etc.

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 TYPES OF MONEY IN ECONOMY

➢ CURRENCY IN CIRCULATION = Currency with public + Currency with bank

➢ Deposits with Bank = Demand deposits (Saving a/c + Current a/c) + Term deposits
(Fixed deposits + Recurring deposits).
➢ Deposits with RBI = Bank deposits with RBI + Other deposits with RBI
➢ Postal Deposits = Demand deposits + Term deposits
(Note – Postal deposits are the deposits in the post office bank A/C).

WHAT IS LIQUIDITY?
Liquidity refers to the ease with which an asset can be quickly converted into cash
without significantly affecting its value.

MEASURES OF MONEY SUPPLY

M1 (Narrow Money) = Currency with the public
+ Demand deposits in banks + Other deposits
with RBI. M1 & M2 – Narrow money
M2 = M1 + Savings deposits with post office measures
savings banks. M3 & M4 – Broad money
M3 (Broad Money) = M1 + Time deposits with measures
Liquidity order –
banks (most commonly used measure). M1 > M2 > M3 > M4
M4 = M3 + Total deposits with post office
savings banks (excluding National Savings
Certificates).

MONEY MULTIPLIER(MM)
The money multiplier is the ratio that measures the potential maximum amount of money
created in the banking system for a given level of reserves. It demonstrates how banks
can multiply an initial deposit through lending and re-depositing.

Money Multiplier

(Note - The Cash Reserve Ratio (CRR) is the percentage of a bank's total deposits that
must be kept as reserves in cash form with the Reserve Bank of India.)

❖ CRR INCREASES MM DECREASES

❖ CRR DECREASES MM INCREASES

MONETARY POLICY

India's monetary policy, formulated and implemented by the Reserve Bank of India (RBI),
aims to control inflation and deflation, manage the money supply, and ensure economic
stability and growth.

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 TOOLS OF MONETARY POLICY

Quantitative Tools Qualitative Tools

QUANTITATIVE TOOLS
TOOL FULL FORM DESCRIPTION

Rate at which the central bank lends to

RR Repo Rate
commercial banks against securities.

Rate at which commercial banks park their

RRR Reverse Repo Rate
surplus funds with the central bank.

Statutory Liquidity Mandated percentage of deposits to be

SLR
Ratio maintained in liquid assets.

Portion of deposits that banks are required

CRR Cash Reserve Ratio
to keep with the central bank.

Long-term interest rate at which the central

BR Bank Rate
bank lends to commercial banks.

Open Market Buying or selling of government securities to

OMO
Operations regulate money supply.

Facility for banks to borrow overnight funds

Marginal Standing
MSF from the central bank at a higher interest
Facility
rate

In case of Inflation (Rise in general price level) – All the rates CRR, SLR,
RR, RRR, BR are increased to combat inflation. This policy is also known
as Contractionary/Tight/Hawkish monetary policy.
In case of Deflation (Fall in general price level)- All the rates CRR, SLR,
RR, RRR, BR are decreased to combat inflation. This policy is also known
as Expansionary/Easy/Dovish monetary policy.

𝐶𝑈𝑅𝑅𝐸𝑁𝐶𝑌 𝐷𝐸𝑃𝑂𝑆𝐼𝑇 𝑅𝐴𝑇𝐼𝑂 =

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 QUANTITATIVE TOOLS
TOOL DESCRIPTION

Persuading banks to follow the central bank's policies and

Moral Suasion
guidelines

Enforcing specific regulations or penalties on non-compliant

Direct Action
institutions.

Setting the minimum margin that banks must maintain for

Margin Requirements
certain types of loans.

Limiting the amount of credit available to certain sectors or

Credit Rationing
uses.

Fiscal policy refers to the use of government spending and

taxation policies to influence economic conditions, specifically
FISCAL POLICY the levels of aggregate demand, employment, and inflation
within an economy.

Fiscal Policy During Inflation and Deflation :-

During Inflation (Rising Prices) During Deflation (Falling Prices & Low
Objective: Control demand and reduce Demand)
money supply Objective: Boost demand and increase money
Measures: supply
§ Increase taxes (reducing disposable Measures:
income) §Reduce taxes (increasing disposable income)
§ Reduce government spending §Increase government spending (on
§ Increase public borrowing infrastructure, welfare, etc.)
§Reduce public borrowing

RESERVE BANK OF INDIA

Important Facts About RBI
Established: April 1, 1935 (Hilton Young Commission (1926) recommendation) -
Passed by parliament through RBI ACT 1934 as a central bank.
Nationalised under the Banking Regulation Act 1949 passed by the parliament as
a regulator of Banking sector.
Nationalization of Banks in India :-
State Bank of India (SBI) Nationalization (1955) -
Previously Imperial Bank of India
First Phase (1969) – 14 banks nationalized
Second Phase (1980) – 6 more banks nationalized

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 First Governor: Sir Osborne Smith
First Indian Governor: C.D. Deshmukh (1943)
Current Governor: Sanjay Malhotra (26th)
Nationalization: January 1, 1949
Headquarters: Mumbai
Change in Financial Year: Shifted from July-June to 1st April- 31st March
(effective from 1867), [divided into 4 quarters]
Key Committees:-
Bimal Jalan Committee (Economic Capital Framework)
Usha Thorat Committee (Financial Inclusion)
Nachiket Mor Committee (Financial Services for Small
Businesses & Low-Income Households)
Urjit Patel Committee (Monetary Policy Framework)

Functions of RBI

Monetary Authority – Regulates money supply and controls inflation

through monetary policy tools.
Issuer of Currency – Issues currency notes (except ₹1 note & coins, issued
by Govt. of India).
Bankers' Bank/Regulator of Banks – Ensures stability and compliance
under the Banking Regulation Act, 1949.
Lender of Last Resort – Provides financial support to banks facing a crisis.
Foreign Exchange Management – Manages forex reserves and exchange
rates under FEMA (Foreign Exchange Management Act), 1999.
Regulation of Payment Systems – Supervises digital payments, UPI, RTGS,
NEFT.
Developmental Role – Promotes financial inclusion, rural banking, and
economic growth.
Government's Banker – Manages government borrowings and bond
issuances.

OTHER FINANCIAL INSTITUTIONS

NABARD
Established: July 12, 1982, under the
NABARD Act 1981 (on recommendation of B. (National Bank for Agriculture
Sivaraman Committee) and Rural Development)
Headquarters: Mumbai
Regulated by: RBI
Purpose: Financing and development of rural, agriculture, and allied sectors
Major Functions:
1. Refinancing rural credit institutions (RRBs, Co-operative Banks)
2. Implementing rural development schemes
3. Supporting financial inclusion and Self-Help Groups (SHGs)
4. Monitoring Rural Infrastructure Development Fund (RIDF)

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(Note – Does not deal directly with public )

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 (RRB)
Established in 1975 Based on recommendation of
Narasimham Committee. Regional Rural Banks
Supervised by NABARD and Regulated by RBI
Owned by: Central Government (50%) + State Government (15%) + Sponsor Bank
(35%)
Purpose: To provide credit and banking facilities to rural areas, especially farmers
and small businesses
1st RRB: 2nd Oct 1975, Prathama Bank (sponsored by Syndicate Bank) in
Moradabad, Uttar Pradesh.

SIDBI
Established: April 2, 1990 (Small Industries Development
Headquarters: Lucknow, Uttar Pradesh Bank of India)
Regulated by: RBI
Purpose: Promotion, financing, and development of Micro, Small, and Medium
Enterprises (MSMEs)
Key Functions:
1. Provides refinance to banks for MSME lending.
2. Implements government schemes like MUDRA, Stand-Up India.

Micro Units Development and Refinance Agency (MUDRA) Scheme

April 8, 2015 ( PRADHAN MANTRI MUDRA YOJANA (PMMY) )
Implemented by SIDBI and regulated by RBI
Eligibility: Small business owners, startups, MSMEs, women entrepreneurs
No Collateral required
Loan Categories:
Shishu: Loans up to ₹50,000.
Kishore: Loans above ₹50,000 and up to ₹5 lakh.
Tarun: Loans above ₹5 lakh and up to ₹10 lakh.
Tarun Plus: Newly added category for loans above ₹10 lakh and up to ₹20
lakh, specifically for those who have previously availed and successfully
repaid loans under the Tarun category (effective from October 24, 2024).

SEBI was established on April 12, 1988, and SEBI

given statutory powers on January 30, 1992, (Securities and Exchange Board
under the SEBI Act, 1992. of India)
Regulates the securities market to protect
investors' interests and promote market
efficiency.
Headquarters: Mumbai, Maharashtra.
The current chairman of the (SEBI) is Tuhin Kanta Pandey.

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 NHB
Established in 1988,
(National Housing Bank)
under the Act of 1987

IRDAI
Formed in 1999 under the IRDAI Act, 1999,
(Insurance Regulatory and
and became statutory body in April 2000.
Development Authority of India)
Headquarters – Hyderabad, Telangana.
It regulates and promotes the insurance industry in India, ensuring consumer
protection and market stability.

NBFCs provide banking services without a NBFCs

banking license and are regulated by RBI (Non-Banking Financial
under the RBI Act, 1934. Companies)
Key Features:
1. Cannot accept demand deposits.
2. Not part of the payment & settlement system.
3. Offer loans, asset financing, investment, and insurance.

Microfinance Institutions (NBFC-MFIs)

MFIs provide small, collateral-free loans to low-income individuals and
self-employed groups.
Regulated by: RBI under NBFC-MFI guidelines.
Father of Microfinance: Muhammad Yunus (Bangladesh) – Introduced
Grameen Model Banks (Nobel Prize, 2006).
India’s 1st MFI: SEWA Bank (1974).
Credit Delivery Mechanisms: Self-Help Groups (SHGs) & Joint Liability
Groups (JLGs).

Self-Help Groups (SHGs)

Groups of 10-20 people saving together and lending to each other.
Typically BPL individuals in rural areas, supported by MFIs for additional
credit.

Joint Liability Groups (JLGs)

Groups of 4-10 borrowers guaranteeing each other's loans.
Often formed for small business ventures, reducing credit risk.

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 Inflation is the sustained rise in the general price level of
INFLATION goods and services over time, reducing the purchasing power
of money.

Causes of Inflation:

1. Demand-Pull Inflation: Excess demand over supply leads to rising prices. Causes include:
Increased consumer spending
Government expenditure
Easy credit availability
Export demand

2. Cost-Push Inflation: Rising production costs push prices up. Causes include:
Higher wages
Increased raw material costs
Supply chain disruptions
Higher taxes on goods

Types of Inflation:
1. Creeping Inflation: Slow and manageable price rise (1-3% per year).
2. Walking Inflation: Moderate inflation (3-10%) that affects economic stability.
3. Galloping Inflation: Rapid and uncontrollable rise in prices (>10%).
4. Hyperinflation: Extreme inflation where prices rise exponentially, leading to
economic collapse.

TERM DEFINITION

A decrease in the rate of inflation, indicating a slowdown in the

Disinflation
rise of prices.

A situation where the economy experiences stagnant growth, high

Reflation
unemployment, and high inflation simultaneously

A combination of stagnant economic growth, high unemployment,

Stagflation
and high inflation.

Measurement of Inflation::
1. Consumer Price Index (CPI): Measures retail price changes for essential goods and
services.
2. Wholesale Price Index (WPI): Tracks price changes at the wholesale level before they
reach consumers.
3. GDP Deflator: Broad measure of inflation based on overall price levels in the
economy.

(Note – RBI uses Combined CPI to measure inflation rate)

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 Unemployment is a situation where people

UNEMPLOYMENT willing and able to work at the current wage

rate cannot find jobs.

Types of Unemployment:

1. Cyclical Unemployment: Occurs due to economic downturns and recessions.

2. Structural Unemployment: Caused by a mismatch between skills and job
requirements.
3. Frictional Unemployment: Temporary unemployment when workers switch jobs.
4. Seasonal Unemployment: Jobs available only in specific seasons (e.g., agriculture,
tourism).
5. Disguised Unemployment: More people employed than needed, reducing productivity
(common in agriculture).
6. Underemployment: Workers are employed below their skill level or work fewer hours
than desired.
7. Voluntary unemployment: A person is unemployed for some specific Job/Salary. (Ex.
Unemployed student preparing for Govt. exams)

Organized Sector Unorganized Sector

Governed by formal rules, Operates without formal rules,
regulations, and labour laws. regulations, or labour laws.
Provides job security, benefits, and Lacks job security, benefits, and
fixed working hours. has irregular working hours.

It is the movement of people from one place to another,

MIGRATION involving a change in residence. It can be internal
(within a country) or international (between countries)
and is driven by various factors.

Push factors are reasons that force people to leave their place of residence, such
as unemployment, poverty, natural disasters, and political instability.
Pull factors attract people to a new location, such as job opportunities, better living
conditions, education, and security.
Example: A farmer migrates to a city due to drought (push factor) and better job
prospects (pull factor).

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 COMMITTEES & GOVERNMENT SCHEMES
COMMITTEES:
Rangarajan Committee (2014): Redefined poverty and employment.
Arjun Sengupta Committee: Focused on employment in the unorganized sector.

GOVERNMENT SCHEMES:
MGNREGA (2005): Guarantees 100 days of rural employment.
Skill India Mission(2015): Enhances employability through skill development.
Startup India(2016): Supports entrepreneurship to create jobs.
Atmanirbhar Bharat Rozgar Yojana(2020): Incentivizes job creation post-pandemic.

PHILIPS CURVE:
It illustrates the inverse relationship
between inflation and unemployment.
Inflation increases unemployment
decreases and vice versa.
Great Depression – 1929-39 & Great
Recession - 2007-09.
Philips Curve fails in case of
Stagflation.

POVERTY
Poverty is a condition where individuals lack sufficient income and resources to meet
basic necessities like food, shelter, healthcare, and education.
Types of Poverty :

Absolute Poverty: Lack of basic necessities like food, shelter, and healthcare.
Measured by a fixed poverty line

Relative Poverty: Income is lower than the average in society, leading to

economic inequality.

Chronic Poverty: Long-term or generational poverty due to lack of

opportunities.

Multidimensional Considers non-income factors like education, healthcare,

Poverty: and living standards (Measured by MPI).

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 ESTIMATION OF POVERTY LINE IN INDIA
Poverty line is the amount of money needed for a person to meet his basic needs.

1. Poverty Estimation Committees in India (Pre-Independence)

Dadabhai Naoroji in his book ‘Poverty and Un-British rule in India’ – Poverty
line of Rs.16 to Rs.35 per capita per year at 1867-68 prices.
The Bombay Plan (1944) suggested a poverty line of Rs.75 per capita per year

2. Poverty Estimation Committees in India (Post-Independence)

Dandekar & Rath Committee (1971):

First systematic approach to define poverty.

Based on minimum calorie intake (2,400 kcal in rural & 2,100 kcal in
urban areas).

Alagh Committee (1979):

Established the first official poverty line based on minimum consumption

expenditure.

Lakdawala Committee (1993):

Used Consumer Price Index-Industrial Workers (CPI-IW) and Consumer Price

Index-Agricultural Labourers (CPI-AL) to construct state-specific poverty lines
Excluded health & education expenses in poverty estimation.

Tendulkar Committee (2009):

Shifted to a broader definition including food, health, education, and clothing.

Defined poverty line as ₹27/day (rural) & ₹33/day (urban) in 2011-12. [ Rural
Rs.816/month/per capita & Urban Rs.1000/month/per capita ]
Note – Percentage of people living below the poverty line(2011-12) – 21.9%
(Urban-13.7% & Rural-25.7%)

Rangarajan Committee (2014):

Recommended higher poverty line of ₹32/day (rural) & ₹47/day (urban).

Not officially adopted by the government.

NITI Aayog & Multidimensional Poverty Index (MPI) (2021):

Uses health, education, and living standards as poverty indicators.
Based on UNDP’s Global MPI.

India now focuses more on MPI-based poverty estimation rather than just income
levels.
Head Count Ratio = No. of multidimensionally poor people/Total population

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 BALANCE OF PAYMENTS
It is a systematic record of all economic transactions between a country and the
rest of the world over a specific period.

Components of BoP :

CURRENT ACCOUNT CAPITAL ACCOUNT

Records capital transfers and the
Records trade in goods, services,
acquisition or disposal of non-produced,
income, and transfers.
non-financial assets (e.g., patents, land).
Visible Trade (Merchandise
Trade): Exports and imports of
physical goods.
FINANCIAL ACCOUNT
Records investments, Foreign Direct
Invisible Trade: Services
Investment (FDI), Foreign Portfolio
(tourism, banking), income
Investment (FPI), and external borrowings.
(remittances, interest), and
unilateral transfers (foreign
aid, gifts). ERRORS AND OMISSIONS
Adjustments for discrepancies in data.

Types of Deficits in BoP

1. Trade Deficit: When imports > exports in goods.
2. Current Account Deficit (CAD): When total imports (goods + services) > total exports
+ remittances.
3. Fiscal Deficit: When government spending > revenue (not directly part of BoP but
affects it).
4. BoP Deficit: When the overall BoP is negative, indicating a decline in foreign exchange
reserves.
Key Difference: Trade deficit focuses only on goods, while CAD includes goods + services
+ transfers.

India’s foreign exchange reserves fell to a dangerously low level,

BOP 91) leading to an inability to meet external payment obligations.
(19 (then PM – P V Narasimha Rao)
CRISIS
Causes:
High imports, low exports.
Excessive foreign borrowing.
Global factors like oil price rise and Gulf War.
Impact:
Severe foreign exchange shortages.
Pledged gold and borrowed from the IMF.
Rapid devaluation of the rupee.

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 1991 ECONOMIC REFORMS:
To resolve the BOP crisis, India initiated wide-ranging economic reforms in 1991
under then Finance Minister Dr. Manmohan Singh.

Key Measures:

Liberalization: Reduced govt. control over industries, allowing private sector

growth. Licensing requirements were eased.
Privatization: Public sector enterprises were opened to private investment
and disinvestment (sale of government stakes).
Globalization: Encouraged foreign direct investment (FDI) and foreign
portfolio investment (FPI).
Fiscal and Monetary Reforms: Fiscal deficit control, rationalization of taxes,
reduction in subsidies, and interest rate reforms.
Exchange Rate Management: The rupee was devalued, and the exchange
rate system was made more market-determined.
These reforms helped stabilize India's economy and set it on a path of growth and
integration with the global economy.

CURRENCY VALUE CHANGES:

“MARKET FORCES VS. GOVERNMENT INTERVENTION"

DEPRECIATION
Market-driven: Currency loses value due to market forces, inflation, trade deficits,
or political instability.
Example: INR depreciates against the USD when India faces high inflation or a trade
deficit.

APPRECIATION
Market-driven: Currency gains value due to favorable economic factors, higher
interest rates, or stability.
Example: INR appreciates against USD with strong economic performance or low
inflation

DEVALUATION
Deliberate (Government): Government reduces the currency's value to correct trade
imbalances or boost exports.
Example: India devalued the rupee in 1991 to manage the BOP crisis.

REVALUATION
Deliberate (Government): Government increases the currency's value to curb
inflation or manage BOP surplus.
Example: China has occasionally revalued the yuan to control inflation and trade
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 Foreign Exchange Regulation Act, 1973 which was replaced by
Foreign Exchange Management Act,1999.
A NOSTRO account is an account held by a bank in a foreign
country, while a VOSTRO account is an account held by a
foreign bank in the domestic bank's country

FIVE YEAR PLANS

(1947-2017)
First implemented in USSR(Russia) in 1928 by Joseph Stalin.
M. Visvesvaraya pioneer of economic planning (book- Planned Economy for India)
National Planning Committee (1938)- S.C. Bose
Bombay plan (1944) given by JRD Tata, GD Birla, Purushottamdas Thakurdas,
John Matthai and some other Industrialists.
People’s Plan (1945)- MN Roy.
Gandhian Plan (1944)- S.N. Aggarwal
Sarvodaya Plan (1950)- By Jaiprakash Narayan inspired by Gandhian plan as the
Sarvodaya Idea of Vinoba Bhave.
Planning Commission (1950) - a resolution passed, with J.L. Nehru as the first
chairman of the Planning Commission.
Dissolution of Planning Commission – 17 Aug,2014
Setting up of NITI Aayog – 1 Jan,2015

FIRST FIVE YEAR PLAN (1951 - 1956)

Based on Harrod-Domar model
Focused on agriculture and irrigation
Targeted growth: 2.1%
Actual growth: 3.6%-
Drafted by K.N. Raj
Chairman – J.L. Nehru
Bhakra Nagal Dam(Satluj) and Hirakund Dam(Mahanadi)
Family Planning Programme(1952)
5 IITs established

SECOND FIVE YEAR PLAN (1956 - 9161)

PC Mahalanobis Model
Focused on Rapid Industrialisation
Chairman – JL Nehru
Targeted growth- 4.5%
Actual growth- 4.1%
DRDO (1958)
Industrial Policy Resolution 1956

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 STEEL PLANTS:-
1. BHILAI(CG)– USSR(RUSSIA
2. ROURKELA(ODISHA)- GERMANY
3. DURGAPUR(WB)-BRITAIN
(All theses countries helped to build respective steel plants)

THIRD FIVE YEAR PLAN (1961 - 1966)

Sadpy & Sukhmay Model
Also called Gadgil Yojana
Focused on agriculture and industrial revolution & self reliant & self
generating economy
Targeted growth – 5.6%
Actual growth - 2.4%
Low growth due to Indo-China war(1962) and Indo-Pak war(1965)
In 1964 IDBI(Industry Development Bank of India and UTI(Unit Trust of India)

1ST BREAK – PLAN HOLIDAY (1966-69)

Green Revolution started (1966-67)
Norman Borlaug (father of Green Revolution)
MS Swaminathan (father of Green Revolution in India)

FOURTH FIVE YEAR PLAN (1969-1974)

ASHOK MENON MODEL
Focused of Growth with stability and progressive achievement of self-reliance.
Chairman- Indira Gandhi
Targeted growth – 5.7%
Actual growth- 3.3%
1969 – 14 Banks Nationalized
1974- Underground Nuclear test(Smiling Buddha) – Pokhran, Rajasthan
1974- Family Planning programme
Drought Prone Area Programme launched in 1973

FIFTH FIVE YEAR PLAN (1974-1979)

DP Dhar Model
Also called Investment model of Planning commission
Slogan- Garibi Hatao given by Indira Gandhi
Chairman- Indira Gandhi
Targeted Growth - 4.4%
Actual growth - 4.8%
1975 – RRBs (Regional Rural Banks)
1978- Minimum need programme
20 points programme
June 1975 – National emergency
1978 – terminated by Janata Party
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 2ND BREAK – ROLLING PLANS(1978-80)
suggested by Gunnar Myrdal

SIXTH FIVE YEAR PLAN (1980-1985)

Input- Output Model
Focused on poverty eradication and Employment generation.
Chairman- Indira Gandhi
Targeted growth- 5.2%
Actual growth- 5.7%
1980- 6 Banks Nationalised
12 july 1982- NABARD(recommendation by Shivaraman Committee)
1982- EXIM- Export Import Bank
Family planning introduced due to increasing population

SEVENTH FIVE YEAR PLAN (1985-1990)

Ramkrishna Hegde
Focused on rapid food grain production, increased employment creation and
productivity.
Chairman- Rajiv Gandhi
Targeted growth- 5%
Actual growth- 6%
1986- speed post
1988- SEBI Estb.
1989-Jawahar Rojgar Yojana

3RD BREAK- ANNUAL PLANS(1990-1992)

New economic policy launched(Narasimha Rao committee)

LPG Reforms – Rao-Manmohan Model

EIGHTH FIVE YEAR PLAN (1992-1997)

John-Miller Model
Focused on development of human resources i.e. employment, education, and
public health
Targeted growth-5.6%
Actual growth- 6.8%
1993- Pradhan Mantri Rojgar Yojana
Eradication of illiteracy(15-35yrs)

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 NINTH FIVE YEAR PLAN (1997-2002)
Planning Commission Model
Focused on growth with social justice and equity.
Also focused on environment sustainability
Chairman – Atal Bihari Vajpayee
Targeted growth- 7%
Actual Growth- 5.6%
50th anniversary of Independence

TENTH FIVE YEAR PLAN (2002-2007)

Planning Commission Model
Aim to double per capita income of India in the next 10 years
Chairman- Atal Bihari Vajpayee & Manmohan Singh
Target growth- 8%
Actual growth- 7.6%

ELEVENTH FIVE YEAR PLAN (2007-2012)

C Rangarajan Model
Focused on faster and inclusive growth
Chairman- Manmohan Singh
Targeted growth- 9%
Actual growth- 8%
Right to Education Act 2009, came into effect from 2010

TWELFTH FIVE YEAR PLAN (2012-2017)

Planning Commission Model
Focused on faster and more inclusive and sustainable growth

(NOTE: SUCCESSFUL PLANS- 1st, 5th, 6th, 7th , 8th.)

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 INDUSTRIAL POLICY
RESOLUTIONS (IPR)
1. IPR 1948
First industrial policy post-independence.
Classified industries into Public, Private, and Controlled Sectors.
State control over defense, railways, coal, and heavy industries.
Beginning of license raj

2. IPR 1956 (Economic Constitution of India)

Introduced a Socialist Approach to industrialization.

Industries classified into three categories:
1. Schedule A (Public Sector Only) – 17 industries (e.g., defence, atomic energy,
railways).
2. Schedule B (Mixed Sector) – 12 industries (e.g., fertilizers, aluminium, road
transport).
3. Schedule C (Private Sector) – All remaining industries open for private
participation.
Promoted public sector dominance and rapid industrialization.

3. IPR 1977 (Small-Scale Focus – Morarji Desai Government)

Prioritized small & cottage industries for self-reliance.

Restricted large industries to the core sector (iron, steel, oil, heavy
engineering).
Promoted industrial growth in rural & backward areas.

4. IPR 1980 (Efficiency & Growth – Indira Gandhi Government)

Focused on efficiency and modernization.

Encouraged large-scale industries in backward regions.
FERA Act 1973, and started Monopolistic and Restrictive Trade Practices
(MRTP Act)

5. New Industrial Policy 1991 (LPG Reforms – P.V. Narasimha

Rao & Manmohan Singh)

Abolished License Raj (except for strategic sectors).

Opened industries to private & foreign investment (FDI).
Reduced government control, promoting market-driven growth.

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 Miscellaneous

Father of Green Revolution (World): Norman Borlaug

Father of Green Revolution (India): M.S. Swaminathan
First State to Ratify: Punjab
Green Revolution
Types of Seeds Used: High-Yielding Variety (HYV) seeds
To Increase food grain production through modern
agricultural techniques.

Blue Revolution To Increase fish production and aquaculture.

White Revolution To Increase milk production (Operation Flood).

Yellow Revolution To Increase oilseed production.

Golden Revolution To Increase horticulture production

Grey Revolution To Increase fertilizer production

Red Revolution To Increase tomato and meat production

Black Revolution To Increase tomato and meat production

TYPES OF MARKETS
Market Type Characteristics Example

Large numbers of buyers and sellers; Homogeneous

Perfect Agricultural
products; Free entry and exit; Price determined by
Competition markets
market forces; Buyers & sellers are price takers.

Single seller with no close substitutes; High barriers Indian

Monopoly
to entry; Price maker (controls price and supply). Railways

Clothing
Monopolistic Many sellers with differentiated products; Free entry
brands, FMCG
Competition and exit; Firms compete on branding and quality.
products

Few large firms dominate the market; Products can Telecom

Oligopoly be homogeneous or differentiated; High barriers to companies
entry; Firms may engage in price wars or collusion. (Airtel, Jio, Vi)

Boeing & Airbus in

A special case of oligopoly with only two dominant
Duopoly aircraft
firms; High interdependence between firms.
manufacturing
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 LORENZ CURVE
The Lorenz curve shows the distribution of
income or wealth within an economy,
illustrating inequality.
Gini Coefficient
The Gini coefficient is a measure of income
inequality within a population, ranging from 0
to 1, where 0 represents perfect equality and 1
represents maximum inequality. It is derived
from the Lorenz curve and is widely used to
assess the distribution of wealth in a society.

Irving fisher gave the money illusion concept MV = PT

M (Money Supply), V (Velocity of Money), P (Price Level), T (Transaction Volume)

SARFESI ACT 2022 (Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act)- provides power to the bank or any
financial institution to seize the property of a defaulting borrower.

Auxiliaries to trade are support services like banking, insurance, warehousing,

transportation, advertising, and communication that facilitate the smooth flow
of goods and services in trade and commerce.

STOCK CONCEPT: FLOW CONCEPT:

Refers to a quantity measured at a Refers to a quantity measured over
specific point in time. a period of time.
Examples: Capital, Wealth, Examples: Income, Production,
Population, Inventory. Expenditure, Investment.

An indifference curve represents the satisfaction derived from consuming two

different goods.

The economist who for the first time scientifically determined National Income in
India is - V.K.R.V. Rao

The parallel economy refers to unreported financial activities that evade taxes
and regulations, such as black money, corruption, and smuggling. Example:
Undeclared real estate transactions to avoid tax.

Automatic Stabilizers - Automatic stabilizers are economic policies that

automatically adjust to economic changes without the need for active intervention.
Examples include unemployment benefits and progressive income taxes.

Accommodating Stabilizers- Accommodating stabilizers are discretionary fiscal

or monetary policies actively implemented by policymakers to stabilize the
economy. Examples include stimulus packages and central bank interest rate

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 Fixed Cost Costs that do not vary with the level of production or output
(e.g., rent).

Variable Cost Costs that change in proportion to the level of production or

output (e.g., raw materials).

Implicit Cost Opportunity costs of using resources owned by the firm (e.g.,
owner's time).

Explicit Cost Direct, out-of-pocket payments for inputs or resources (e.g.,

wages, utilities).

Positive Benefits experienced by third parties as a result of an economic

Externalities activity (e.g., education, vaccination).

Negative Costs imposed on third parties as a result of an economic

Externalities activity (e.g., pollution, noise).

Committee Year Key Recommendations

Simplification of tax structure, broadening the

Boothalingam Committee 1967
tax base.

Raja Chelliah Committee Lowering direct tax rates, removing

(Father of Tax Reforms 1991 exemptions, introduced VAT and MODVAT
in India) (early GST).

Simplification of income tax laws, phasing out

Kelkar Committee 2002
corporate tax exemptions

Parthasarathi Shome Review of GAAR, reducing tax disputes and

2012
Committee litigation

Arvind Subramanian
2015 Provided framework for GST implementation.
Committee

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 useful links
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COMPLETE MATHS REVISION

USEFUL PLALISTS

COMPLETE ARITHMETIC COMPLETE ADVANCED LIVE MOCKS SOLUTION

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