Concept

Economics studies how a society uses its resources. National income measures the total value of goods and services a country produces. The key aggregates are GDP and GNP.

These indicators show the size and health of an economy.

Key Points & Formulas

• GDP (Gross Domestic Product): value of goods/services produced within a country in a year.
• GNP = GDP + net income earned from abroad.
• Per capita income = national income ÷ population.
• India's economy has three sectors: primary (agriculture), secondary (industry), tertiary (services).

Worked Example

Q. How does GNP differ from GDP?

GDP counts production within the country's borders.

GNP adds the net income residents earn from abroad (and subtracts income sent out).

So GNP = GDP + net factor income from abroad.

Practice MCQs

Q1. GDP measures the value of goods and services produced

(A) Within a country's borders (B) By citizens anywhere (C) Only by the government (D) Only for export

Answer: A. GDP is output produced within the domestic territory.

Q2. The services sector of an economy is the

(A) Tertiary sector (B) Primary sector (C) Secondary sector (D) Public sector

Answer: A. Services form the tertiary sector; agriculture is primary and industry secondary.

Concept

India adopted Five Year Plans (from 1951) to achieve planned economic development, formerly through the Planning Commission. Since 2015, NITI Aayog has replaced it as the apex policy think-tank.

The plans set targets for growth, industry and poverty reduction.

Key Points & Formulas

• First Five Year Plan (1951–56) focused on agriculture (Harrod–Domar model).
• Second Plan (Mahalanobis model) emphasised heavy industry.
• Planning Commission was set up in 1950; replaced by NITI Aayog in 2015.
• Twelfth Plan (2012–17) was the last Five Year Plan.

Worked Example

Q. Which body replaced the Planning Commission and when?

The Planning Commission oversaw the Five Year Plans.

In 2015 it was replaced by NITI Aayog (National Institution for Transforming India).

NITI Aayog now serves as the government's policy think-tank.

Practice MCQs

Q1. The body that replaced the Planning Commission in 2015 is

(A) NITI Aayog (B) Finance Commission (C) RBI (D) SEBI

Answer: A. NITI Aayog replaced the Planning Commission in 2015.

Q2. India's First Five Year Plan gave priority to

(A) Agriculture (B) Heavy industry (C) Services (D) Defence

Answer: A. The First Plan (1951–56) focused on agriculture and irrigation.

Concept

The Union Budget is the annual financial statement of the Government of India's estimated receipts and expenditure for a financial year (1 April–31 March). It is presented in Parliament, usually on 1 February.

It is divided into the revenue budget and the capital budget.

Key Points & Formulas

• Presented by the Finance Minister under Article 112 (Annual Financial Statement).
• Revenue budget: revenue receipts and expenditure; Capital budget: loans and capital spending.
• Fiscal deficit = total expenditure − total receipts (excluding borrowings).
• The financial year runs from 1 April to 31 March.

Worked Example

Q. What is a fiscal deficit?

It is the gap between the government's total expenditure and its total receipts.

Borrowings are excluded from receipts in this calculation.

A fiscal deficit shows how much the government must borrow.

Practice MCQs

Q1. India's financial year runs from

(A) 1 April to 31 March (B) 1 January to 31 December (C) 1 July to 30 June (D) 1 October to 30 September

Answer: A. The Indian financial year is 1 April to 31 March.

Q2. The Union Budget is presented under which Article?

(A) Article 112 (B) Article 32 (C) Article 370 (D) Article 14

Answer: A. Article 112 deals with the Annual Financial Statement (Budget).

Concept

The Economic Survey is an annual document prepared by the Ministry of Finance that reviews the economy's performance over the past year and is presented just before the Union Budget.

It is authored under the Chief Economic Adviser.

Key Points & Formulas

• Presented a day before the Union Budget.
• Reviews growth, inflation, employment and major sectors.
• Prepared by the Department of Economic Affairs, Ministry of Finance.
• It is advisory — its recommendations are not binding.

Worked Example

Q. How does the Economic Survey relate to the Budget?

The Economic Survey reviews the economy's recent performance.

It is presented just before the Union Budget.

It provides the background and context for the Budget proposals.

Practice MCQs

Q1. The Economic Survey is presented

(A) Just before the Union Budget (B) After the Budget (C) At year-end (D) Every five years

Answer: A. It is tabled a day before the Budget.

Q2. The Economic Survey is prepared by the

(A) Ministry of Finance (B) RBI (C) NITI Aayog (D) Election Commission

Answer: A. It is prepared by the Ministry of Finance (Department of Economic Affairs).

Concept

Banks accept deposits and lend money, channelling savings into investment. The Reserve Bank of India (RBI) is the central bank that regulates the banking system and issues currency.

The RBI controls money supply through monetary policy.

Key Points & Formulas

• RBI established in 1935; it is the central bank and issues currency (except coins).
• RBI is the 'banker's bank' and lender of last resort.
• Monetary tools: repo rate, reverse repo rate, CRR, SLR.
• Commercial banks create credit through lending.

Worked Example

Q. What happens to borrowing when the RBI raises the repo rate?

The repo rate is the rate at which the RBI lends to banks.

A higher repo rate makes borrowing costlier for banks and customers.

This reduces borrowing and helps control inflation.

Practice MCQs

Q1. The central bank of India is the

(A) Reserve Bank of India (B) State Bank of India (C) NABARD (D) SEBI

Answer: A. The RBI is India's central bank.

Q2. Currency notes in India (except coins) are issued by the

(A) RBI (B) Ministry of Finance (C) SBI (D) Mint

Answer: A. The RBI issues currency notes; coins are issued by the government.