The Economy related term conundrum .... Explained

The past few months have been dominated by a barrage of terms mostly originating from economics, here is an honest attempt to try and bring in some sense (mostly my-understanding) into the terms. It is a collation of different search strings and it is a collection effort from my side :)

I will try and update this page every time I hear or read of a new term... so please keep checking here :)

Gross Domestic Product GDP: The GDP is the total monetary or market value of all the finished goods and services produced within a country's borders in a specific time period. As a broad measure of overall domestic production, it functions as a comprehensive scorecard of the country’s economic health. When GDP increases, it’s a sign the economy is strong.

Consumer Price Index (Inflation): reflects the increased cost of living, the Consumer Price Index (CPI) is a measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care. It is calculated by taking price changes for each item in the predetermined basket of goods and averaging them. Changes in the CPI are used to assess price changes associated with the cost of living.

Recession: A country is said to be in recession if it experiences 2 or more quarters of negative economic growth.

Economic growth: An increase in the capacity of an economy to produce goods and services, compared from one period of time to another.

Leading Indicators of economic growth: some of the leading indicators of economic growth are as follows: The stock market, Manufacturing Activity, Inventory levels, Retail sales, building permits, Housing market, level of new business getting started, Air travel, bond yields, 

Lagging Indicators of economic growth: some of the Lagging indicators of economic growth are as follows: Changes in GDP, Income and wages, Unemployment rate, Inflation, Currency rates, Interest Rates, 

Demand is the quantity of products that people want to buy.

Supply is the quantity of products that are available for people to sell.

Price is the cost to buy one or more units of a product that is both in demand and readily available in supply.

Competitive equilibrium is quantity of product traded=quantity of product in demand=quantity of products available to be supplied.

Demand-constrained Economy: If the price of the product is above the competitive equilibrium, there is excess supply, and the quantity of the product is demand-constrained. This situation is the same as total aggregate demand for the product is less than the potential output

Supply-constrained Economy: If the price of the product is below the competitive equilibrium, there is excess demand, and the quantity of product is supply-constrained. This situation occurs when actual output of product is lesser than potential output despite there being demand for the product.

Cyclical Slowdown: A cyclical slowdown is a period of lean economic activity that occurs at regular intervals. Such slowdowns last over the short-to-medium term, and are based on the changes in the business cycle. A cyclical economic slowdown is a part of the business cycle having its peaks and troughs. The economy will be moving in cycles with periods of peak performance followed by a downturn and then a trough of low activity. These are expected to be short-term problems that could be addressed with an adequate mix of fiscal and monetary policies.

Structural Slowdown: A structural slowdown, on the other hand, is a more deep-rooted phenomenon that occurs due to a one-off shift from an existing paradigm. sometimes the problems of the economy can go deeper, impeding the efficient and fair production of goods and services. In such a scenario, a monetary and fiscal stimulus won't be enough to revive the economy. Fixing such problems would require the government to undertake some structural policies. The changes, which last over a long-term, are driven by disruptive technologies, changing demographics, and/or change in consumer behaviour. In developing countires like ours, this type of slow down occurs due to many factors like: lack of infra-structure, over-regulation, interplay between demand and supply.

By far for me, this has been the best categorization of the state that the Indian economy is in, this state being told by our ex-RBI-Guv, so I doff-my-hat to you sir!

Growth Recession: Growth Recession is a term in economics that refers to a situation where economic growth is slow, but not low enough to be a technical recession, yet unemployment still increases. It is used to describe an economy that is growing at such a slow pace that more jobs are being lost than are being added. A growth recession does not reach the severity of a true recession, but still involves a rise in unemployment and an economy that is performing below its potential. Growth recessions can occur as simply a milder form of recession, as part of an extended, sluggish recovery from a declared recession, or due to structural and technological change in the economy unrelated to normal business cycles. It is visible in industrial production, employment, real income, and wholesale-retail trade. However, an economy that is growing but is also expanding more slowly than its long-term sustainable growth rate may still feel like a recession, or growth recession. It can seem this way even if economic growth is not actually dipping below zero. This is because growth is so weak that unemployment rises and incomes fall, thus creating conditions that feel similar to a recession. many people are out of work and may have to curtail discretionary spending, and as a result, inflation will remain low. However, people who are fortunate enough to have jobs in a growth recession may find that their real incomes and spending power increase.

I would love to hear your views. Please leave a comment in the comment box below so that I can learn from your experience.

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