How Basic Economics Terminology Helps in Bank Exams?

Are you preparing for the banking exams in 2023? Then, you must be aware that the syllabus for some of the important recruiting bank exams, such as NABARD, IBPS PO, RBI Grade B, and so on, includes topics like “Economy Concepts” and “Important Economic Terminology”. A good proportion of the questions in the banking exams are based on basic economics terminology, even though most of the questions are centred on current affairs related to Economics. Therefore, you must begin focusing on the fundamentals and terminology if you want to score high in this subject.

Economics is concerned with a wide range of issues, including the manufacture, distribution, and consumption of commodities, as well as the provision of services. This article will give you a complete list of economic words and definitions. This will be highly beneficial for all of your banking exams.

Basic Economics

Economics is defined as the study of scarcity and its consequences for resource usage, the production of products and services, the growth of production and welfare over time, and a wide range of other complicated concerns that are extremely important to society. Basic Economics is concerned with how societies manage their economy to achieve prosperity for their people. 

It assists in understanding how individuals, industries, or governments of the country allocate and organise their resources. There are two branches of economics as mentioned below:

1. Macroeconomics: Macroeconomics is primarily concerned with gaining a comprehensive grasp of the economy at both the national and international levels. This research entails gathering all of the economic data and other variables required for modeling and investigating the economy as a whole.  

2. Microeconomics: The study of the economy and the economic behaviour of individuals, enterprises, and firms is the primary objective of basic microeconomics. It monitors how individuals and businesses make economic decisions. 

This is the core of basic economics. Continue reading to learn more about economics and its various terminologies.

5 Basic Principles of Economics

Scarcity, supply and demand, marginal costs, marginal benefits, and incentives are the five basic economic principles. Scarcity implies that resources are restricted, and resource allocation is determined by supply and demand. While making decisions, consumers consider marginal costs, benefits, and incentives.

25 Important Economics Terms for Bank Exam

Some of the most essential Economics terms that come in banking exams are cost, profit, sales, demand, capital, money, investment, etc. Check out the important terms along with their definition below:

• Supply: The quantity of a good or service that manufacturers are prepared and ready to sale at a given price.
• Demand: The number of units of a product or service that customers can purchase at a given price.
• Opportunity Cost: The next best alternative’s worth must be rejected to pursue a specific action.
• Inflation: The rate at which a country’s prices for products and services increase. As a result, the value of a currency’s purchasing power falls.
• Deflation: The opposite of inflation is deflation. It happens when demand declines, which has the effect of lowering prices, among other things.
• GDP: The Gross Domestic Product (GDP) of a country is the total value of goods and services generated in a given year. GDP refers to the value of commodities generated inside a country’s geographical boundaries, regardless of whether citizens or outsiders produce them.
• GNP: The Gross National Product (GNP) is the entire worth of products and services produced by a country’s population or businesses in a given year, regardless of geographic location.
• Fiscal Policy A government’s policy of adjusting tax rates and expenditure levels in order to influence the national economy.
• Monetary Policy: The process by which a country’s central bank manages the supply of money. The Reserve Bank of India (RBI) is central bank in India.
• Entrepreneurship: The procedure for creating and expanding a business or other venture by looking for opportunities and taking risks.
• Trade: The transfer of products and services between countries or areas. 
• Tariff: It is a charge on imported products and services. Tariffs raise the price of imported goods.
• Subsidy: A payment or other benefits offered by the government to help a specific enterprise or activity. 
• Average Tax Rate: It is paid after adding all sources of taxable income and dividing by the amount of taxes payable.
• NDP: Net Domestic Product: NDP = GDP – Depreciation
• NNP: Net National Product: NNP = GNP – Depreciation 
• REPO Rate (Re Purchase Option): The interest rate at which the RBI offer loans to other banks.
• Reverse REPO Rate: The interest rate at which the RBI borrows from other banks. It is less than the REPO rate.
• Cash Reserve Ratio (CRR): The amount of liquid cash that each bank must keep with the RBI. It is calculated as a percentage of their deposits.
• Statutory Liquidity Ratio (SLR): The percentage of liquid cash reserves that each bank must hold on hand.
• Marginal Standing Facility (MSF): The interest rate at which banks can borrow overnight funds from the RBI in exchange for certified government assets. The borrowing limit in this case, is 2% of the banks’ Net Demand and Time Liabilities (NDTL).
• Bank Rate: The rate at which the RBI lends to other banks is higher (than the REPO rate). A higher bank rate implies that banks will charge higher loan rates. 
• Capital to Risk-Weighted Assets Ratio (CRAR): The capital-to-risk ratio of a bank.
• Fiscal Deficit: It is calculated as the difference between the government’s total expenditure and total income (excluding borrowing). When the expenditure exceeds the revenue, a fiscal deficit occurs.
• Trade Agreement: It is a deal between two or more countries that removes trade tariffs between the nations while also attempting to reduce non-trade barriers to trade.

Well Known Economic Terms To Be Aware of

Economics is a complex subject for the banking exam. Thus, one must be well-versed with a few terms, as shown below, or it will sometimes appear overwhelming in the exam:  Check out the basic terms that you must aware of below:

• Unemployed: This word refers to a group of persons who have not worked in a particular economy’s labour community. 
• Recession: When a country’s real GDP falls in two consecutive calendar quarters, the economy is said to be in recession. 
• Money: Money refers to any liquid assets that don’t offer any returns to their owner. This asset’s value fluctuates dramatically over time. 
• Supply Curve: The supply curve is a graphical representation of supply against production. 
• Welfare Economics: Welfare Economics is a part of Microeconomics. It assesses the effectiveness of a certain economy. It also investigates the distribution of income among the subjects of such an economy. 
• Capital: It is the amount of money invested in a business in order to make a profit.
• Labor: The physical and mental effort individuals put forth to produce goods and services.
• Price: The sum of money required to purchase a commodity or service.
• Market: A location or system that connects sellers and buyers for the exchange of products or services.
• Profit: Profit denotes the additional margin obtained after selling a product or service. 
• Progressive Tax: When a country’s tax rates rise as the taxable amount rises, the tax rate is considered to be progressive.

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FAQs: Basic Economics Terminology

Below are some of the most commonly asked questions on economic terminology.

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