Economy, Macro & Market Cycles

GDP Growth Rate

The percentage change in real gross domestic product from one period to the corresponding earlier one.

GDP Growth = (Current Period Real GDP - Prior Period Real GDP) / Prior Period Real GDP x 100 %

Gross Domestic Product

The total market value of all final goods and services produced within a country in a given period.

GDP = Private Consumption + Investment + Government Spending + (Exports - Imports) ₹ crore

Economy, Macro & Market Cycles

Gross Value Added

The value of output less the value of intermediate inputs, measured before product taxes and subsidies.

GDP = Gross Value Added + Product Taxes - Product Subsidies ₹ crore

Economy, Macro & Market Cycles

Index of Industrial Production

A monthly index measuring the volume of output in mining, manufacturing and electricity.

IIP = weighted average of production indices for mining, manufacturing and electricity, against a base year index points

Economy, Macro & Market Cycles

Inflation

A sustained rise in the general price level, which reduces what each rupee can buy.

Inflation Rate = (Current Price Index - Prior Year Price Index) / Prior Year Price Index x 100 %

Economy, Macro & Market Cycles

Interest Rate Cycle

The multi-year swing in policy and market interest rates between tightening and easing phases.

Test: policy rates move in a sustained direction across several meetings, reversing only after inflation or growth conditions change materially %

Economy, Macro & Market Cycles

Leading Economic Indicator

A data series that tends to change before the broader economy does.

Test: the series historically turns ahead of GDP at business cycle turning points qualitative

Economy, Macro & Market Cycles

Market Cap to GDP Ratio

The total market capitalisation of listed companies divided by the country's gross domestic product.

Market Cap to GDP = Total Market Capitalisation of Listed Companies / Nominal GDP x 100 %

Economy, Macro & Market Cycles

Market Crash

A sudden, severe fall in prices across a market, typically over days rather than months.

Test: a broad index falls sharply within a very short period, usually accompanied by a spike in volatility and volume %

Economy, Macro & Market Cycles

Market Cycle

The recurring pattern of rising and falling market prices, related to but distinct from the underlying economic cycle.

Phases commonly described as accumulation, mark-up, distribution and mark-down qualitative

Economy, Macro & Market Cycles

Market Efficiency

The proposition that prices already reflect available information, so consistently earning excess returns from that information is not…

Forms: weak, where prices reflect past prices; semi-strong, adding public information; strong, adding private information qualitative

Economy, Macro & Market Cycles

Monetary Policy

A central bank's management of interest rates and money supply to achieve inflation and growth objectives.

Test: the central bank adjusts policy rates, reserve requirements or liquidity operations to influence credit conditions qualitative

Economy, Macro & Market Cycles

Money Supply

The total stock of money in an economy, measured in graduated aggregates from narrow to broad.

M3 = Currency with the Public + Demand Deposits + Time Deposits + Other Deposits with the Reserve Bank ₹ crore

Economy, Macro & Market Cycles

Nominal GDP

Gross domestic product measured at current prices, including the effect of inflation.

Nominal GDP = Real GDP x GDP Deflator / 100 ₹ crore

Economy, Macro & Market Cycles

Open Market Operations

A central bank's buying or selling of government securities to add or remove liquidity from the banking system.

Test: the central bank transacts in government securities with the market, changing system liquidity by the transaction value ₹ crore

Economy, Macro & Market Cycles

Per Capita Income

National income divided by population, used as a rough measure of average prosperity.

Per Capita Income = National Income / Total Population ₹

Economy, Macro & Market Cycles

Policy Transmission

The process by which a change in the central bank's policy rate passes through to lending and deposit rates in the economy.

Transmission = Change in Bank Lending Rate / Change in Policy Rate, over the period examined %

Economy, Macro & Market Cycles

Purchasing Managers' Index

A survey-based index of business conditions, where readings above 50 indicate expansion and below 50 contraction.

PMI = weighted diffusion index of survey responses on output, new orders, employment, supplier deliveries and stocks index points

Economy, Macro & Market Cycles

Purchasing Power

The quantity of goods and services a unit of currency can buy.

Purchasing Power Change = 1 / (1 + Inflation Rate) - 1, over the period considered %

Economy, Macro & Market Cycles

Quantitative Easing

Large-scale purchases of long-dated assets by a central bank to lower long-term rates when policy rates are near zero.

Test: the central bank buys assets on a pre-announced scale to expand its balance sheet, targeting quantity rather than a short-term rate ₹ crore

Economy, Macro & Market Cycles

Real GDP

Gross domestic product adjusted to remove the effect of price changes, so it measures output rather than value.

Real GDP = Nominal GDP / GDP Deflator x 100 ₹ crore

Economy, Macro & Market Cycles

Real Return

The return on an investment after adjusting for inflation, measuring the gain in purchasing power.

Real Return = (1 + Nominal Return) / (1 + Inflation Rate) - 1 %

Economy, Macro & Market Cycles

Recession

A significant, broad-based decline in economic activity lasting more than a few months.

Common working test: two consecutive quarters of negative real GDP growth qualitative

Economy, Macro & Market Cycles

Recovery

The phase following a trough in which activity begins rising again toward and past its previous peak.

Test: real GDP is rising from a trough, though it may still be below the prior peak qualitative