• Skip to primary navigation
  • Skip to main content
  • Skip to primary sidebar

ClearIAS

UPSC: Latest News, IAS, IPS, UPSC Online Preparation

UPSC Prelims Test Series 2021Enroll Now
  • Home
  • Start
    • IAS
    • IAS Exam Eligibility
    • UPSC
    • UPSC Syllabus
    • UPSC Exam Date
    • UPSC Results
    • FAQs
  • Programs
    • Prelims
    • Mains
    • Interview
  • Buy
    • Courses
    • Mock Test Series
    • IAS Books
    • eBooks (PDF)
  • Free
    • Study Materials
    • Guidance
    • eBooks (PDFs)
    • Mock Exams
    • ClearIAS App
    • Downloads
  • Toppers
  • Blog
  • Login
ClearIAS » Economics Notes » Basic Concepts of Economics In Simple Language

Basic Concepts of Economics In Simple Language

Last updated on March 29, 2020 by Alex Andrews George

Economics ConceptsEconomics is a tough nut to crack for many – GDP, GNP, NDP, NNP, Repo, Reverse Repo, SLR, CLR, CRAR – there are many concepts to be understood. But if the concepts are properly understood economics is fun.

ClearIAS.com is trying to provide an overview of the basic concepts of Economics in a simple language for easy understanding.

The main areas covered are – national income, monetary policy, fiscal policy, and balance of payments(BoP).

National Income

Under the broad topic of national income, you may hear terms like GDP, GNP, NNP etc.

GDP: Gross Domestic Product (GDP) is the total money value of final goods and services produced in the economic territories of a country in a given year. The total value of goods and services produced in India for 2014-15 is projected to be around 100 lakh crore Indian rupees or around 2 trillion US dollars at current market prices. This is the value of Indian GDP when expressed at current market price.

GDP stands for the total value of goods and services produced inside the territory of India irrespective of whom produced it – whether by Indians or foreigners.

130+ Prelims Marks is Possible. Only if you are guided the right way.

Join ClearIAS Prelims Test Series 2021.

Take a Free Test

GNP: Gross National Product (GNP) is the total value of goods and services produced by the people of a country in a given year. It is not territory specific. If we consider the GNP of India, it can be seen that GNP is lesser than GDP.

Also, see Indian Economy: Issues Related to Planning.

economics

Monetary Policy

Monetary Policy refers to the policy of the central bank. In India Reserve Bank of India (RBI) is responsible for monetary policy. Repo, Reverse Repo, CRR, SLR etc are part of monetary policy.

REPO rate: 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 4.4%.

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).

Also see : REPO and CRR Rate Cuts – What Should You Understand?

Don't miss the latest updates of ClearIAS!

Join ClearIAS Telegram Chanel.

Get free studymaterials and guidance.

Join for FREE

Marginal Standing Facility (MSF): MSF is the rate at which scheduled commercial banks could borrow money overnight from RBI against approved securities. Borrowing limit of banks under the marginal standing facility is 2 per cent of their respective Net Demand and Time Liabilities (NDTL).

The current MSF Rate is 5.4%.

Bank Rate: Bank rate is a higher rate, (1% higher than REPO rate) charged by RBI when it gives loans to commercial banks. Present bank rate is 5.4 %. Bank rate is different from MSF in the nature that Bank rate is long term, applies for all commercial banks and there is no limitation like 2 per cent of their respective Net Demand and Time Liabilities (NDTL).

CRR: CRR corresponds to Cash Reserve Ratio. It corresponds to the percentage of liquid reserves each bank have to keep as cash reserve with RBI (in their current accounts) corresponding to the deposits they have. Banks will not get any interest for these deposits. Present CRR is 3%.

SLR: SLR (Statutory Liquidity Ratio) corresponds to the percentage of liquid reserves each bank have to keep as cash reserve with themselves corresponding to the deposits they have. Banks have to mandatory keep reserves corresponding to SLR locked with themselves in the form of gold or government securities. Present SLR is 18.5 %. The main difference between CRR and SLR is that banks need to keep CRR with RBI, but SLR with themselves, but locked.

CRAR: Capital to Risk Weighted Assets Ratio is arrived at by dividing the capital of the bank with aggregated risk weighted assets. The higher the CRAR of a bank the better capitalized it is.

Fiscal Policy

Fiscal policy refers to the policy actions of the Government. Budget, tax, subsidies, expenditure etc. form part of the fiscal policy. You might need to understand various deficits like Fiscal Deficit and Primary Deficit as part of Fiscal Policy.

Trusted by Toppers. Loved by 3,00,000+ Registered Users.

ClearIAS UPSC Prelims Online Mock Exams.

Take a Free Test

Fiscal Deficit (FD):  The fiscal deficit is the difference between the government’s total expenditure and its total receipts (excluding borrowing). In layman’s term, FD corresponds to borrowings and other liabilities.

Balance of Payments

Current Account Deficit (CAD): Current Account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid). Current account deficit in simple terms is dollars flowing in minus dollars flowing out.

Also see :  Fiscal Deficit and Current Account Deficit.

Capital Account Deficit: Capital account Deficit occurs when payments made by a country for purchasing foreign assets exceed payments received by that country for selling domestic assets. (For example, if Indians are buying a lot of properties in the US, but if Americans are not buying any properties or buildings in India, India will have a Capital Account Deficit.)

A deficit in the capital account means money is flowing out the country, but it also suggests the nation is increasing its claims on foreign assets. In other words at times of Capital Account Deficit, foreign investment in domestic assets is less and investment by the domestic economy in foreign assets is more. If you need to know more about BoP, refer our notes on Balance of Payments.

Tip: For more free notes on economics, browse our economics archive.

Print Friendly, PDF & Email
Share50
Tweet
WhatsApp
50 Shares

Integrate Learning With Test-Taking!

Is UPSC Prelims your weak area?

Don’t worry!

We can help you score high marks!

Are you ready to practise the right way?

Yes, I want ClearIAS to help me score high!

Get our newsletter

Don't miss our email updates!

About Alex Andrews George

Alex Andrews George is a mentor, author, and entrepreneur. Alex is the founder of ClearIAS and one of the expert Civil Service Exam Trainers in India.

He is the author of many best-seller books like 'Important Judgments that transformed India' and 'Important Acts that transformed India'.

A trusted mentor and pioneer in online training, Alex's guidance, strategies, study-materials, and mock-exams have helped thousands of aspirants to become IAS, IPS, and IFS officers.

Reader Interactions

Comments

  1. mathy says

    November 14, 2014 at 1:45 pm

    Complicated explained easily……

    Reply
  2. ashutosh says

    September 13, 2015 at 2:20 pm

    Well explained, thanks

    Reply
  3. bhagwan gehlot says

    September 17, 2015 at 2:11 pm

    nice…plz update current values

    Reply
  4. Aarti says

    November 20, 2015 at 2:41 am

    very well explained. thanks!

    Reply
  5. shubham says

    January 3, 2016 at 11:09 am

    very much usefull…

    Reply
  6. Gyanaranjan says

    February 16, 2016 at 12:33 am

    Great website for aspirants…great job

    Reply
    • ClearIAS.com says

      February 16, 2016 at 7:25 am

      @Gyanranjan: Thanks.

    • Ramesh says

      December 20, 2017 at 12:57 pm

      Happy to see this notes which is simplified

  7. Rohit Diwan says

    July 1, 2016 at 2:52 pm

    sir what is the procedure to apply for upsc pre 2016? and when will the forms be available at the book stores and vendors?
    thankyou

    Reply
  8. Gorav says

    July 13, 2016 at 3:40 am

    Sir upsc prelims admission form is not available at samalkha book stores. Kindly guide how to apply for upsc prelims 2016?

    Reply
  9. Kiran desai says

    July 30, 2016 at 11:19 am

    Hindi language mai muje chaiye sir plzz

    Reply
  10. Ashok says

    November 1, 2016 at 3:02 pm

    i really like your articles that seem a great effort by ClearIas team …thank you so much and keep it Alive!!!

    Reply
  11. Abhishek singh says

    November 27, 2016 at 4:20 pm

    thanks clear ias that you providing notes in very easy language that anyone understand . . . . .keep it going . .. . you are helping many indeed .

    Reply
  12. Ajaz Ahmad says

    November 29, 2016 at 11:06 pm

    I m highly thankful to ur team. It benefits a lot

    Reply
  13. Prakash Barik says

    December 5, 2016 at 9:26 pm

    it is too much essential site for those candidates who prepare upsc xm by net site

    Reply
  14. Shahid says

    January 7, 2017 at 11:00 pm

    How could i download these notes as PDF.

    Reply
  15. Shivam Maurya says

    January 24, 2017 at 3:20 pm

    Very clear concepts . plz sir you have to describe in Hindi language.

    Reply
  16. Sandeep sharma says

    March 29, 2017 at 12:41 pm

    Great great great ! Excellence site to gain knowledge about everything..Don’t miss friends.

    Reply
  17. Lyricspoints says

    May 11, 2017 at 10:19 am

    Bhai aap economy ki useful term explain kar skte ho kya… jo aksar use hoti hai

    Reply
  18. Harsha says

    October 2, 2017 at 5:36 pm

    Thanks

    Reply
  19. Rahul says

    November 23, 2017 at 10:40 am

    Kindly update the info.

    Reply
  20. Pallabi Gogoi says

    May 28, 2018 at 11:37 am

    Very helpful concept of economics.Thank you sir

    Reply
  21. R.U.Megha says

    October 21, 2018 at 1:16 am

    this explanation just creates more questions in mind. who do I ask ?

    Reply
    • ClearIAS.com says

      October 21, 2018 at 6:15 am

      Good that you have more questions. That’s a positive sign of learning. Feel free to ask your questions in the comment section below. Either someone from our team OR your fellow aspirants who prepare for UPSC exam will help you clear your doubts.

  22. Supreet says

    December 10, 2018 at 1:21 pm

    How can I subscribe u ..??

    Reply
  23. rinki says

    December 26, 2018 at 3:07 pm

    Sir hindi main notes mil Skte hain kya????

    Reply
  24. Noby says

    February 21, 2019 at 12:35 am

    Amazing, this made me feel like flying bcz my phobia “economy ” became really joyfull with these terms.thank you clearias

    Reply
  25. Pavani says

    March 5, 2019 at 10:28 am

    Basics are very very good to learn and to understand easily thank you

    Reply
  26. Jyoti says

    May 11, 2019 at 11:40 am

    Very well explained, thank u

    Reply
  27. sunil kumar gouda says

    October 11, 2019 at 7:43 pm

    very well explained

    Reply
  28. Sai Mohan says

    November 8, 2019 at 8:07 am

    Are the products made in India in which the intermediate products are from foreign are included in GDP of India ????????

    Reply
  29. tannu says

    February 23, 2020 at 4:04 pm

    This website is very good for prep

    Reply
  30. Priyanka says

    March 30, 2020 at 1:58 am

    Thank u sir for making complex topic simple

    Reply
  31. Ravindra says

    May 7, 2020 at 12:27 pm

    2 lakh crore Indian rupee …how equals to 2 trillion us dollar. .1 dollars. .approx 70 rs

    Reply
  32. anilkumar n mani says

    May 30, 2020 at 12:55 pm

    alex sir mock text series ulla print materials nalkamo

    Reply
  33. Naveen says

    June 18, 2020 at 1:30 pm

    Good Sir

    Reply
  34. aswathy says

    August 17, 2020 at 11:56 am

    very much useful

    Reply
  35. diya says

    August 17, 2020 at 11:56 am

    very much useful for me

    Reply
  36. Bijayalaxmi sahoo says

    January 15, 2021 at 8:13 pm

    Please sir basis concept of Indian economic very short me batadijia

    Reply
  37. Rajnikant Gupta says

    February 3, 2021 at 8:36 am

    really helpful, I’m grateful to you

    Reply

Leave a Reply Cancel reply

Your email address will not be published. Required fields are marked *

Primary Sidebar

Aim to be an IAS Officer?

Nothing can beat practice!

Join ClearIAS Prelims Test Series 2021

Practice 40+ online mock exams!

Limited Period Offer: 40% OFF!

Enroll Now!

ClearIAS Study Materials for UPSC Prelims and Mains

  • Indian History - Indian History and Culture.
  • Geography - Indian and World Geography.
  • Economics - Indian Economy.
  • Indian Polity - Constitution, Social Justice etc.
  • General Science - Science and Technology.
  • Environment - Biodiversity, Climate Change etc.
  • Current Affairs - National and international.

ClearIAS Study Materials for UPSC Mains (Extra-Topics)

  • World History - GS paper 1.
  • Indian Society - GS paper 1.
  • Foreign Relations - GS paper 2.
  • International Affairs - GS paper 2.
  • Internal Security - GS paper 3.
  • Disaster Management - GS paper 3.
  • Ethics - GS paper 4.

ClearIAS Study Materials for UPSC Mains (Paper-wise)

  • Essay Paper
  • GS 1 Paper
  • GS 2 Paper
  • GS 3 Paper
  • GS 4 Paper

ClearIAS Online Mock Exams (Prelims and Mains)

  • Prelims Mock Exams
  • Mains Mock Exams (AWP)

Congrats! You are at the right place - ClearIAS!

  • 1 million+ monthly users!
  • 9,00,000+ ClearIAS App Downloads!
  • 4,50,000+ Facebook Followers!
  • 3,50,000+ Email Subscribers!
  • 3,00,000+ Registered Aspirants!

Prepare for UPSC Online!

Get Started

UPSC Online Preparation Guidance

  • UPSC - Union Public Service Commission
  • IAS - Indian Administrative Service
  • Civil Services Exam (CSE) - Exam Pattern
  • UPSC Syllabus - Subjects to learn
  • IAS Books - Books to learn
  • UPSC CSE Eligibility - Who can appear?
  • UPSC Exam Dates - When should you apply?
  • UPSC Result - Check UPSC Results
  • UPSC FAQs - Clarify your queries

What do toppers' say about ClearIAS?

Poonam Dalal

"Working 24*7 in the police for the last 5 years and been out of touch with the preparation, I took the guidance from your website, especially the ClearIAS prelims test series. I bought it and found it to be the best available online." - Poonam Dalal, ClearIAS Online Student

Read more reviews by UPSC Toppers...

Enroll in

ClearIAS UPSC Prelims Online Test Series 2021

Score High in the IAS Exam!

Trusted by Toppers

Limited Period Offer: 40% Discount!

Enroll now

Don’t lose out without playing the right game!

Adopt the 3 Strategies for Success in the UPSC Civil Services Exam.

Learn UPSC Strategies

  • Home
  • IAS
  • UPSC
  • FAQs
  • Blog
  • Login

UPSC Online Preparation

  • Union Public Service Commission (UPSC)
  • Indian Administrative Service (IAS)
  • Indian Police Service (IPS)
  • IAS Exam Eligibility
  • UPSC Free Study Materials
  • UPSC Exam Guidance
  • UPSC Prelims Test Series
  • UPSC Syllabus
  • UPSC Online
  • UPSC Books
  • UPSC Prelims
  • UPSC Mains
  • UPSC Interview

ClearIAS

  • About ClearIAS
  • ClearIAS Programs
  • IAS Coaching
  • Announcements
  • Book Review
  • ClearIAS App
  • Sitemap
  • Work with us
  • Advertise with us
  • Privacy Policy
  • Disclaimer
  • Terms and Conditions
  • Contact Us

UPSC 2021

UPSC Exam Calendar 2021

Follow us

Follow us on FacebookFollow us on TwitterFollow us on YouTubeFollow us on ClearIAS Learning AppFollow us on ClearIAS Test Prep AppFollow us on Telegram

Featured on

ClearIAS Featured in The Hindu
ClearIAS Featured in the Times of India
ClearIAS Featured in the New Indian Express
ClearIAS Featured in the Yourstory

and many more...

Copyright © 2020 - ClearIAS.com