⚡ Topic 06 of 6 · Chapter 01 · Quick Revision
Key Economic Terms & Quick Revision
Inflation, deflation, stagflation, recession, depression — all key terms with examples and complete chapter revision.
📚 Essential Economic Terms — Explained Simply
Inflation
Sustained rise in general price level. Your ₹100 buys less than before. Measured by CPI and WPI in India.
Deflation
Sustained fall in general price level. Sounds good but is dangerous — reduces investment and causes recession.
Stagflation
High inflation + high unemployment + slow growth simultaneously. Worst of both worlds. India faced this in 1970s.
Recession
Two consecutive quarters of negative GDP growth. Economy shrinks. Jobs are lost. India had technical recession in 2020 (COVID).
Depression
Severe, prolonged recession. GDP falls by 10%+. Mass unemployment. Great Depression (1929-33) is the classic example.
Disinflation
Inflation is still positive but falling. E.g., inflation falls from 8% to 5%. Different from deflation (negative inflation).
Hyperinflation
Extremely high inflation (50%+ per month). Zimbabwe (2008) had 89.7 sextillion % inflation. Currency becomes worthless.
Fiscal Deficit
Government’s total expenditure exceeds total revenue (excluding borrowings). India’s fiscal deficit target: ~5.1% of GDP (2024-25).
Current Account Deficit
Imports of goods + services exceed exports. India typically runs a CAD because it imports more oil than it exports.
Repo Rate
Rate at which RBI lends to commercial banks. Higher repo rate = costlier loans = less spending = lower inflation.
GDP Deflator
Ratio of Nominal GDP to Real GDP × 100. Measures overall price level change. Used to convert nominal to real GDP.
Crowding Out Effect
Government borrowing raises interest rates, reducing private investment. More government spending → less private spending.
📊 Inflation Measurement in India
| Index | Full Form | Measures | Base Year | Released by |
|---|---|---|---|---|
| CPI | Consumer Price Index | Retail prices paid by consumers | 2012 | CSO/NSO |
| WPI | Wholesale Price Index | Wholesale prices at producer level | 2011-12 | DPIIT |
| CPI-IW | CPI for Industrial Workers | Prices for industrial workers | 2016 | Labour Bureau |
⭐ RBI’s Inflation Target: RBI targets CPI inflation at 4% (±2%) — i.e., between 2% and 6%. This is called flexible inflation targeting, adopted in 2016.
✅ Complete Chapter 01 Revision Checklist
✅ India follows a mixed economy — public + private sectors
✅ Three sectors: Primary (~15% GDP), Secondary (~25% GDP), Tertiary (~60% GDP)
✅ GDP = C + I + G + (X-M) — total value produced within borders
✅ GNP = GDP + Net Factor Income from Abroad (NFIA)
✅ NNP = GNP − Depreciation
✅ National Income = NNP at Factor Cost
✅ Real GDP removes inflation; Nominal GDP includes it
✅ Per Capita Income = National Income ÷ Population
✅ HDI = Education + Health + Income (UNDP, introduced by Mahbub ul Haq, 1990)
✅ India’s HDI rank: ~132nd (Medium Human Development)
✅ Gini coefficient: 0 = perfect equality; 1 = perfect inequality
✅ India’s Gini: ~35; India is 3rd largest by PPP, 5th by nominal GDP
✅ Inflation measured by CPI (RBI target: 4% ±2%) and WPI
✅ Recession = 2 consecutive quarters of negative GDP growth
✅ Stagflation = high inflation + high unemployment + slow growth
✅ Three sectors: Primary (~15% GDP), Secondary (~25% GDP), Tertiary (~60% GDP)
✅ GDP = C + I + G + (X-M) — total value produced within borders
✅ GNP = GDP + Net Factor Income from Abroad (NFIA)
✅ NNP = GNP − Depreciation
✅ National Income = NNP at Factor Cost
✅ Real GDP removes inflation; Nominal GDP includes it
✅ Per Capita Income = National Income ÷ Population
✅ HDI = Education + Health + Income (UNDP, introduced by Mahbub ul Haq, 1990)
✅ India’s HDI rank: ~132nd (Medium Human Development)
✅ Gini coefficient: 0 = perfect equality; 1 = perfect inequality
✅ India’s Gini: ~35; India is 3rd largest by PPP, 5th by nominal GDP
✅ Inflation measured by CPI (RBI target: 4% ±2%) and WPI
✅ Recession = 2 consecutive quarters of negative GDP growth
✅ Stagflation = high inflation + high unemployment + slow growth