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Inflation, GDP, GNP

SBI PO · General Awareness

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Core Concept

Read this first — the foundation of the topic

→Types of Inflation

• Demand-Pull: Too much money chasing few goods • Cost-Push: Production costs increase, pushing prices up • Built-in: Expectations of future inflation drive current price rises Inflation Formula: Inflation Rate = [(Current Year Price - Previous Year Price) / Previous Year Price] × 100 GDP vs GNP - Key Differences GDP (Gross Domestic Product) = Total value of goods and services produced WITHIN a country's borders, regardless of who produces them. GNP (Gross National Product) = Total value of goods and services produced BY a country's citizens, regardless of where they produce them

⚡Simple Memory Trick

1

Identify values - Previous year = 20, Current year = 24

2

Apply formula = [(24-20)/20] × 100

3

Calculate = (4/20) × 100 = 20% Answer: Inflation rate is 20% Worked Example 2: GDP vs GNP Problem: India's GDP = Rs. 100 lakh crore. Indians abroad earn Rs. 5 lakh crore. Foreigners in India earn Rs. 3 lakh crore. Find GNP.

1

Calculate Net Factor Income = Income by Indians abroad - Income by foreigners in India

2

Net Factor Income = 5 - 3 = Rs. 2 lakh crore

3

Apply GNP formula = GDP + Net Factor Income = 100 + 2 = Rs. 102 lakh crore Answer: India's GNP = Rs. 102 lakh crore Exam Shortcut: WPI vs CPI WPI (Wholesale Price Index) = Inflation at producer level, includes raw materials CPI (Consumer Price Index) = Inflation at consumer level, includes services Trick: WPI = Wholesale = Producer, CPI = Consumer = Retail #1 Most Common Mistake Students confuse Real GDP with Nominal GDP: • Nominal GDP = Current year prices (includes inflation effect) • Real GDP = Base year prices (inflation removed) Real GDP gives true economic growth. Always check if the question asks for real or nominal values. Current Affairs Connection India targets 4% inflation rate. RBI uses CPI for monetary policy decisions. Current GDP growth target is around 6-7%. These figures change frequently, so stay updated with economic surveys and budget announcements.

🔑 Key Points

Inflation = General rise in prices over time, reduces purchasing power of money
GDP measures production within country borders, GNP measures production by country's citizens
Inflation Formula: [(Current Price - Previous Price) / Previous Price] × 100
GNP = GDP + Net Factor Income from Abroad (shortcut formula)
WPI measures wholesale prices, CPI measures consumer prices for policy decisions
Real GDP removes inflation effect, Nominal GDP includes current prices
Demand-pull inflation occurs when demand exceeds supply in economy
Cost-push inflation happens when production costs increase significantly
GDP Formula: C + I + G + (X - M) where C=Consumption, I=Investment, G=Government spending
India's inflation target is 4%, RBI uses CPI for monetary policy decisions

📌 Exam Facts

RBI's inflation target for India is 4% with +/- 2% tolerance band
Base year for current GDP calculation in India is 2011-12
WPI has 697 commodities while CPI has different basket for rural and urban areas
Stagflation means high inflation with low economic growth occurring simultaneously
Green Revolution helped control food inflation in 1960s-70s in India
GDP deflator = (Nominal GDP / Real GDP) × 100, measures overall price level
India's GDP calculation follows System of National Accounts (SNA) 2008 methodology
Per Capita Income = National Income / Total Population of the country

🚀 60-Second Revision

Remember: GDP = within borders, GNP = by citizens anywhere
Formula: Inflation = [(New Price - Old Price) / Old Price] × 100
Trap: Real GDP removes inflation, Nominal GDP includes inflation effects
Quick fact: India targets 4% inflation, RBI uses CPI for decisions
Shortcut: GNP = GDP + Net Factor Income from abroad
Pattern: SSC asks current inflation rates and GDP growth figures regularly
Memory aid: WPI = Wholesale = Producer level, CPI = Consumer = Retail level

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