Important economic terms for Competitive Exams

Hello friends, here is a glossary of important budget/economic terms you should know when appearing for competitive exams: 

Basic concepts

Fiscal Policy

It is what a Government does to influence the course of an economy through decisions on taxes and spending.

Monetary Policy

It is what a central bank does to influence the course of an economy through decisions on money supply and interest rate.

Fiscal Consolidation

The term refers to the things a Government does to maintain good fiscal health — cut debt and wasteful expenditure and improve revenue opportunities.

Current Account Deficit

It is a trade measure that shows the value of a country’s imports of goods and services to be higher than the value of its exports.

Fiscal Responsibility and Budget Management Act

The Act is an attempt to make the Government adhere to a phased plan to reduce fiscal deficit, which denotes an excess of expenditure over revenue.

Disinvestment Receipts

The term refers to the money raised by the Government through disinvestment, or the sale of its equity stake in companies it owns.

Wholesale Price Index (WPI)

It is a measure of inflation, or price change, arrived at after regularly measuring the prices of a slew of wholesale goods.

Consumer Price Index (CPI)

It is a measure of inflation, or price change, arrived at after regularly measuring the prices of a slew of household goods and services.

Advance Pricing Agreement (APA)

It is an agreement between a taxpaying entity and the taxman that indicates how the former will price transactions with its associates.

External Commercial Borrowing (ECB)

ECBs refer to commercial loans with a minimum three-year maturity that can be raised from lenders from overseas where interest rates are lower than in India.

Currency Devaluation

Deliberate downward adjustment to value of a country’s currency relative other currencies. Governments do this to make their exports more competitive (cheaper) and imports expensive.

Types of Taxes

Direct Tax

A tax such as the income-tax, which has to be borne by the person it or entity it is imposed on.

Indirect Tax

A tax on goods and services, typically, levied on an entity but paid by another.

Dividend Distribution Tax

This is a tax levied on companies that pay out dividends to its shareholders, i.e. share a portion of earnings with them.

Venture Capital Funds

These are funds that invest in startups, a financially riskier proposition than investing in established companies.

Securities Transaction Tax

It is a tax on all transactions done over the stock exchanges involving securities such as shares, derivatives, and equity-linked mutual funds.

Capital Gains Tax

It is a tax on the gains that ensue when an asset is sold for a price higher than what it was bought for.

Value-Added Tax (VAT)

It is a tax on the value added to a product at each stage of distribution, so that inputs that go into making the product aren’t taxed more than once.

Ad Valorem Tax

This is charged as a percentage of the value of a good or service, not at a specific rate per unit.

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