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13.14 — Economy, Business and Brands
The money category, which quizzes ask about far more than people expect, and which is the easiest to be confidently wrong about.
Terms you must be able to define
What is GDP, and what does it leave out? The total value of goods and services produced in a country in a year. It leaves out unpaid work, ignores distribution, and counts a car crash's repair bill as growth.
What is the difference between GDP and GNP? GDP counts production inside the country; GNP counts production by the country's residents wherever they are. India's remittances make the gap real.
What is nominal versus real, and what is PPP? Nominal is at current prices; real is adjusted for inflation. Purchasing power parity adjusts for what money actually buys locally — which is why India ranks far higher by PPP than by nominal GDP.
What is inflation, deflation, disinflation and stagflation? Prices rising; prices falling; prices rising more slowly; and high inflation with stagnant growth — the combination that broke the old economic consensus in the 1970s.
What is a recession, technically? Conventionally two consecutive quarters of falling GDP, though the formal definitions used by economists are broader.
What are fiscal policy and monetary policy? Government taxing and spending; and the central bank's control of interest rates and money supply. Different institutions, different tools.
What is the repo rate, and the reverse repo? The rate at which the central bank lends to commercial banks against securities, and the rate at which it borrows from them. Raising the repo rate makes borrowing dearer and cools demand.
What is CRR and SLR? Cash Reserve Ratio — the share of deposits banks must park with the central bank in cash; Statutory Liquidity Ratio — the share they must hold in specified safe assets.
What is the difference between direct and indirect tax? Direct is levied on income or wealth and cannot be passed on — income tax, corporate tax. Indirect is levied on goods and services and is passed to the consumer — GST, customs duty.
What is GST, and when did India adopt it? A single indirect tax replacing a patchwork of central and state levies, from 1 July 2017, with slab rates and a GST Council of centre and states.
What is fiscal deficit versus revenue deficit? Total government spending minus total receipts excluding borrowings; and the shortfall on the day-to-day account alone.
What is balance of trade versus balance of payments? Trade is exports minus imports of goods; payments is the full account including services, income and capital flows.
What is a bull and a bear market? Rising and falling. The usual explanation is that a bull attacks upward with its horns and a bear swipes downward.
What is inflation targeting? A central bank mandate to keep inflation near a stated number. India's is 4 per cent with a two-point band either side.
What is the difference between a share, a bond and a debenture? A share is ownership; a bond is a loan to the issuer with interest; a debenture is an unsecured bond backed only by the issuer's credit.
What are blue chip, penny and IPO? Shares of large stable companies; very low-priced speculative shares; and an initial public offering, the first sale of shares to the public.
What is a mutual fund, an index fund and an ETF? A pooled investment run by a manager; one that simply tracks an index rather than picking; and an index fund traded like a share.
What is a Sensex and a Nifty? India's two headline indices — the BSE Sensex of 30 companies and the NSE Nifty 50.
What is a demat account? An account holding shares in electronic form. India moved to demat in the late 1990s, which ended physical share certificates.
What is microfinance, and who is associated with it? Very small loans to people without collateral. Muhammad Yunus and Grameen Bank in Bangladesh won the 2006 Nobel Peace Prize for it.
What is a subsidy, a tariff and a quota? Government payment to lower a price; a tax on imports; and a limit on the quantity imported.
What is opportunity cost? The value of the next best thing you gave up. It is the single most useful idea in economics and the most often ignored.
What is the law of diminishing returns? Adding more of one input while holding others fixed eventually yields smaller gains per unit.
Why are diamonds expensive and water cheap? Because price tracks the value of the next unit, not the total. You already have enough water; you do not have enough diamonds, because they are scarce.
What is inflation's effect on savers and borrowers? It hurts savers and lenders and helps borrowers, because the debt is repaid in money worth less.
Institutions
When was the RBI founded, and what does it do? 1935, nationalised 1949. It sets monetary policy, issues currency, regulates banks and manages foreign exchange reserves.
Which notes does the RBI not issue? The one-rupee note, issued by the Government of India, along with all coins.
What is SEBI, IRDAI and TRAI? The securities market regulator, the insurance regulator and the telecom regulator.
What is NITI Aayog, and what did it replace? A policy think tank from 2015, replacing the Planning Commission that had run five-year plans since 1950.
What were the Five-Year Plans, and how many were there? India's centrally planned development programmes from 1951; the twelfth was the last, ending 2017.
What is the World Bank, and what is the IMF? The World Bank lends for development projects; the IMF lends to countries in balance-of-payments crisis and imposes conditions. Both came from the Bretton Woods conference of 1944.
What is the WTO, and what did it replace? The World Trade Organization, from 1995, replacing GATT — the General Agreement on Tariffs and Trade of 1947.
What is OPEC, and why does it matter? The Organization of the Petroleum Exporting Countries, founded 1960, which coordinates oil output and therefore price.
What is the difference between the G7, G20 and BRICS? Seven large advanced economies; twenty major economies including India, China and Brazil; and the grouping originally of Brazil, Russia, India, China and South Africa, since expanded.
What is SAARC, ASEAN and the EU? South Asian regional cooperation; South East Asian nations; and the European Union with its single market and, for twenty members, the euro.
Which Indian institutions issue what? The RBI issues currency; SEBI regulates markets; NABARD funds rural development; SIDBI funds small industry; EXIM Bank funds trade; LIC is the largest insurer; UIDAI issues Aadhaar; NPCI runs UPI, RuPay and IMPS.
What is UPI, and why is it significant? The Unified Payments Interface, from 2016, which made instant bank-to-bank transfer free and universal. It now processes more transactions per month than most countries' entire payment systems.
Business and companies
What is the difference between a private limited and a public limited company? A private company cannot offer shares to the public and has restrictions on transfer; a public one can list and must disclose far more.
What is limited liability, and why did it change everything? Shareholders can lose only what they invested, not their personal assets. It is what made pooling capital from strangers possible.
Where did the first stock exchange come from? The Dutch East India Company issued tradeable shares from 1602 and Amsterdam created a place to trade them. The BSE, founded 1875, is Asia's oldest.
Which company was the first to be worth a trillion dollars? Apple, in 2018, on the standard reckoning by market capitalisation.
What is the oldest continuously operating company? Kongō Gumi, a Japanese temple construction firm founded in 578 CE, independent for over 1,400 years.
Which private company effectively governed India? The English East India Company, which collected Bengal's revenue from 1765 and administered a population of tens of millions until the Crown took over in 1858.
What is a monopoly, oligopoly and cartel? One seller; a few sellers; and a group of sellers agreeing to fix price or output — which is illegal in most jurisdictions.
What is a merger versus an acquisition? A combination of two firms into one; and one firm buying another. The distinction is often presentational.
What is a unicorn, in business terms? A privately held startup valued above one billion dollars. The term dates from 2013 and was chosen because such companies were then rare.
Which are India's largest business houses by history? Tata, founded 1868 by Jamsetji Tata; Birla; Reliance, founded by Dhirubhai Ambani in 1966; Mahindra; Godrej; and the Aditya Birla group.
What is unusual about Tata's ownership? About two thirds of Tata Sons is held by philanthropic trusts, so a large share of the group's dividends goes to charitable endowments.
Who founded Infosys, and with how much? Narayana Murthy and six colleagues in 1981, with capital of about ₹10,000 borrowed from his wife Sudha Murty.
Who founded Amul, and what is its structure? A dairy cooperative from 1946, driven by Verghese Kurien through Operation Flood — owned by the farmers who supply it, which is the point.
What is the difference between a cooperative and a company? A cooperative is owned by its members, who are usually its producers or customers, and votes are typically one member one vote rather than by shareholding.
Brands: where the names come from
Adobe? A creek behind co-founder John Warnock's house in California.
Amazon? The largest river by volume, for the scale intended — and it starts with A, which mattered for alphabetical web directories in 1994. Bezos first registered the company as Cadabra and dropped it after somebody misheard it as "cadaver".
Apple? Steve Jobs had been working at an orchard and was on a fruit diet, and it came ahead of Atari in the phone book.
Google? A misspelling of googol, 10¹⁰⁰, a word coined by a nine-year-old in 1938.
Nike, and the swoosh? The Greek goddess of victory. The logo was designed by a student, Carolyn Davidson, for $35 — she was given company stock years later.
Sony? From Latin sonus, sound, plus "sonny". Chosen to be pronounceable in every language.
Nintendo? Founded 1889 making playing cards, so it is older than the Nobel Prizes.
IKEA? The founder's initials plus his farm and village — Ingvar Kamprad, Elmtaryd, Agunnaryd.
Lego? Danish leg godt, play well. It happens also to mean "I assemble" in Latin, which the company says is coincidence.
Starbucks? A character in Moby-Dick.
Volkswagen and Mercedes? People's car; and the daughter of an early distributor, Mercédès Jellinek.
BMW's badge? The blue and white of the Bavarian flag, with colours reversed for trademark reasons. The spinning propeller story is later advertising.
Michelin stars? A tyre company's guide from 1900, published to encourage motoring and therefore tyre wear.
Pepsi and Coca-Cola? Both began as patent medicines — Pepsi named for dyspepsia, and Coca-Cola for its two original ingredients.
Häagen-Dazs? Invented words with no meaning in any language, chosen by a Bronx founder to sound Danish.
Visa? Chosen in 1976 because it is pronounced nearly the same in every major language and suggests being allowed across a border.
Java and Python? American slang for coffee, after the island; and Monty Python's Flying Circus, not the snake.
FedEx's logo? The white space between E and x forms an arrow, built deliberately and never advertised.
Which brands became generic words and lost their trademarks? Aspirin, escalator, thermos, heroin, kerosene and zipper — all once brand names.
Money itself
Which is the oldest currency still in use? The British pound sterling, in continuous use for over 1,200 years.
Which currency is worth most per unit? The Kuwaiti dinar.
Where were the first coins minted, and the first paper money? Lydia, in modern Türkiye, around 600 BCE; and China, under the Tang and Song dynasties.
What is fiat money? Money with no intrinsic value that works because a government declares it legal tender and people accept it. Every major currency today is fiat.
What was the gold standard, and when did it end? Currencies fixed to gold. The system unravelled through the twentieth century and effectively ended in 1971 when the United States stopped converting dollars to gold.
What is hyperinflation, and give the standard examples. Extremely rapid price rises. Weimar Germany in 1923, Hungary in 1946 — the worst ever recorded, with prices doubling every fifteen hours — and Zimbabwe in 2008.
What is demonetisation, and when did India do it? Withdrawing legal tender status from notes. India did it in 1946, 1978, and most consequentially in November 2016 for the ₹500 and ₹1,000 notes.
What is the world's most traded currency, and the largest reserve currency? The US dollar for both, by a wide margin.
Why do coins have ridged edges? Originally to stop people shaving precious metal from the rim, a practice called clipping. Isaac Newton introduced milled edges at the Royal Mint for exactly this reason.
What is seigniorage? The profit a government makes from issuing money — the difference between the face value and the cost of producing it.
The Nobel and the economists
Is there a Nobel Prize in Economics? Not in Nobel's will. It is the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel, established in 1968 by Sweden's central bank.
Which Indians have won it? Amartya Sen in 1998 for welfare economics, and Abhijit Banerjee in 2019, shared with Esther Duflo and Michael Kremer, for experimental approaches to poverty.
Which economists should you be able to place? Adam Smith on markets and specialisation; David Ricardo on comparative advantage; Malthus on population; Marx on capital and class; Keynes on demand and government spending in a slump; Hayek and Friedman on markets and monetary policy; Sen on capability and famine.
What did Sen show about famines? That modern famines are rarely caused by absolute food shortage but by collapses in people's ability to obtain food — and that no substantial famine has occurred in a functioning democracy with a free press.
What comes next
The next page is awards, organisations and the abbreviations everybody uses and few can expand.