IAS Prelims Exam: Economic Terms Explained - 2

The Knowledge of Economic Terms is very important to understand the basic Economic Policies and their implimentations. There is a need to understand the Economic Terminology in order to succesfully attempt the Questions of IAS Prelims Exam.

Updated: Oct 9, 2015 18:06 IST


Failure to make repayment of the principal and interest on a debt e.g. sovereign debt (loan obtained by the government) to the lenders, say, international financial institutions, on the scheduled date, causing loss of credibility as a debtor.

Deficit Financing

A situation where the expenditure of the government exceeds its revenue.

Demographic Transition

It is a concept developed by demographer Frank Note stein in 1945 to describe the typical pattern of falling death and birth rates in response to better living conditions associated with economic development. Note stein identified three phases of demographic transition, pre-industrial, developing and modern industrialised societies. Later another phase, post-industrial was also included.


Allowing an individual or group of enterprises to produce goods and services which were hitherto produced by a particular individual or group of enterprises. In India, it refers to allowing large-scale industries to produce goods and services which were produced only by the small-scale industries.


A fall in the exchange rate which reduces the value of a currency in terms of other currencies.


A deliberate sale of a part of the capital stock of a company to raise resources and change the equity and/or management structure of a company.


Those self-employed workers who by and large, run their enterprises by hiring labourers.


An undertaking owned and operated by an individual or by group of individuals to produce and/or distribute goods and/or services mainly for the purpose of sale, whether fully or partly. Equities: Shares in the paid up capital or stock of a company whose holders are considered as owners of the company with voting rights and dividends in the profit.


An enterprise which has got at least one hired worker for major part of the period of operation in a year.

European Union

It is a union of twenty-five independent states founded to enhance political, economic and social cooperation within the European continent. The member countries of European Union are Austria, Belgium, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Netherlands, Portugal, Spain, Sweden, United Kingdom, Malta, Poland, Slovakia and Slovenia.

Export Duties

Taxes imposed on goods exported from a country.

Export Promotion

A set of measures (including fiscal and commercial support measures and steps aimed at removal of trade barriers) taken by a government to promote the export of goods with a view to achieve higher economic growth and accumulation of foreign exchange earnings.

Export-Import Policy

The economic policies of the government relating to its exports and imports.

Family labour/Worker

A member who works without receiving wages in cash or in kind in a farm, an industry, business or trade conducted by the members of the family.

Financial Institutions

Institutions that engage in mobilisation and allocation of savings. They include commercial banks, cooperative banks, developmental banks and investment institutions.

Fiscal Management

The use of taxation and government expenditure to regulate the economic activities.

Fiscal Policy

All the planned actions of a government in mobilising financial resources for meeting its expenditure and regulating the economic activities in a country.

Foreign Direct Investment

Investment of foreign assets into domestic structures, equipment and organisations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially ‘hot money’ which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly.

Foreign Exchange

Currency or bonds of another country.

Foreign Exchange Markets

A market in which currencies are bought and sold at rates of exchange fixed now, for delivery at specified dates in the future.

Foreign Institutional Investment

Foreign investments which come in the form of stocks, bonds, or other financial assets. This form of investment does not entail active management or control over the firms or investors.

Foreign Institutional Investors (FIIs)

Banking and non-banking financial institutions of foreign origin e.g. commercial banks, investment banks, mutual funds, pension funds or other such institutional investors (as distinct from the domestic financial institutions investing) whose investment in stocks and bonds in the country through stock markets have significant influence.

Formal Sector Establishments

All the public sector establishments and those private sector establishments which employ 10 or more hired workers.

Economic Terms Explained -1

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