CAIIB ABM Economic Terms 2026: The Complete Definitions Guide

If you are preparing for CAIIB. The Advanced Bank Management (ABM) paper is where most candidates feel the heat. It is conceptual, it is wide, and it loves to test definitions. The good news? A solid grip on CAIIB ABM economic terms is the single fastest way to add marks to your score.

The IIBF rarely asks you to write essays. Instead, it asks: What is a Giffen good? What is the difference between GDP and GNP?

Which law says "supply creates its own demand"? These are pure recall questions. Get the definition right, and the mark is yours.

This 2026 guide collects 90+ of the most important economics terms from the ABM syllabus into one clean. Exam-ready glossary. Every definition is short.

Every concept is grouped logically. And we have added tables. FAQs.

A smart study plan that a senior editor would expect from a modern resource.

Why Economic Terminology Matters in the CAIIB ABM Exam

The ABM paper is one of the most conceptually demanding subjects in the CAIIB examination conducted by IIBF. A strong command of economic terminology is essential. Many questions test your ability to recall precise definitions. Then apply those concepts in real banking scenarios.

Two things make terms worth the effort. First. They are direct marks — a one-line definition can fetch a full question.

Second, they are the foundation for case studies. When the exam hands you a paragraph about an economy. Asks you to interpret it.

You need the vocabulary to decode it fast.

So treat this glossary as a daily revision tool. Read a block, cover the answers, and test yourself. Then back it up with mock tests to lock the recall in under timed pressure.

National Income, Output and Growth Terms

These macro aggregates appear in almost every ABM cycle. Understand how they build on one another. It is the GDP-to-GNP-to-NDP chain that examiners love.

• Closed Economy. An economy with no economic relations with the rest of the world. It does not engage in foreign trade. Financial or investment relations with other countries.
• Open Economy – An economy that has trade. Financial and investment relations with other countries.
• National Income. The money value of all goods. Services produced within the domestic territory of a country. Plus net factor income from abroad, in a year.
• Per Capita Income – The average income of a resident. Calculated by dividing national income by total population.
• Gross Domestic Product (GDP). The money value of all final goods. Services produced in the domestic territory of a country in a year.
• Net Domestic Product (NDP) – GDP minus consumption of fixed capital (depreciation).
• Gross National Product (GNP) – GDP plus net factor income from abroad (NFIA).
• Economic Growth. The rate of increase of an economy's real income over time. Expressed in terms of GNP or NNP per capita.
• Economic Development. The process of improving quality of human life through higher per capita income. Reduced poverty and enhanced economic opportunity.
• Real Income – The purchasing power of money income. The quantity of real goods and services that money income can buy.
• HDI (Human Development Index). A composite index measuring achievement in three basic dimensions: a long. Healthy life. Knowledge, and a decent standard of living.

Demand, Supply and Consumer Behaviour

This cluster is pure microeconomics. Expect questions on the law of demand. Elasticity and the famous exceptions like Giffen and Veblen-style goods.

• Law of Demand – Other things being equal. More of a commodity is demanded at a lower price. Less at a higher price.
• Elasticity of Demand. The responsiveness of demand to a change in any factor of demand.
• Factors Affecting Elasticity of Demand – (a) nature of the commodity. (b) availability of substitutes. (c) share in total expenditure. (d) diverse uses of the commodity, and (e) consumer behaviour.
• Supply Curve. A graph showing the relationship between the price of a good. The quantity supplied at different prices.
• Consumer Surplus. The difference between what a consumer is willing to pay. What the consumer actually pays.
• Propensity to Consume. The relationship between a change in income. The resultant change in consumption.
• Equilibrium Price – The price at which market supply equals demand. The intersection of the supply and demand curves.
• Equilibrium Quantity – The quantity at which demand equals supply in the market.
• Giffen Goods – Goods with a positive relationship between price and quantity demanded. Their demand curve slopes upward from left to right.
• Engel's Law – Formulated by Ernst Engel; as income rises. The proportion of income spent on food diminishes.
• Say's Law – Supply creates its own demand.

Costs, Pricing and Market Structures

Banking decisions revolve around cost and competition. These terms show up in both ABM theory. Practical lending or pricing scenarios.

• Sunk Costs – Costs already incurred that cannot be reversed.
• Marginal Cost. The addition to total cost from a one-unit increase in production.
• Price – The value of a commodity expressed in terms of money.
• Predatory Pricing – Charging very low prices now to eliminate competition. Then charging much higher prices later.
• Dumping – Selling goods for less than the cost of production. Often in foreign markets.
• Buyer's Market. A market in which supply is plentiful and prices are low. The opposite of a seller's market.
• Competition – Rivalry among buyers and sellers, classified as perfect or imperfect.
• Perfect Competition. A market with very many buyers and sellers of homogeneous goods. Perfect knowledge and free entry, so no single party can influence price.
• Monopoly. A market in. A product without close substitutes is produced. Sold by a single seller.
• Duopoly. A market structure in. Two producers of a commodity compete with each other.
• Market Mechanism. The system whereby prices rise or fall freely in response to changes in demand or supply.

Inflation, Deflation and the Business Cycle

This is the heart of the macro syllabus. A guaranteed source of questions. Note the fine distinctions — they are exactly where examiners set traps.

• Inflation – A steady. Sustained rise in the general price level. The value of money is falling.
• Cost-Push Inflation – Inflation from rising production costs — wage increases. Higher profit margins or heavy taxation — exceeding productivity gains.
• Demand-Pull Inflation. Rising prices caused by an increase in aggregate demand against limited supply.
• Hyperinflation – Sharply rising prices with little or no increase in output. Also called runaway or galloping inflation.
• Deflation – The reverse of inflation. Falling prices when output increases faster than the volume of money.
• Disinflation – A fall in the rate of inflation — a slower price rise. Not an actual fall in prices.
• Recession – A period of slow or negative growth, usually with rising unemployment.
• Stagnation – A prolonged recession, but not as severe as a depression.
• Depression – A prolonged. Deep slump in economic activity, more severe than a recession.
• Boom – A state of economic prosperity.

Fiscal Terms: Government Budgets, Deficits and Taxes

The deficit definitions are a classic ABM trap because they sound similar. Memorise the exact formula for each. That precision is what earns the mark.

• Fiscal Measures. Steps to correct excess or deficient demand through the government budget. Including tax changes and changes in government expenditure.
• Fiscal Policy – The part of government economic policy dealing with taxation. Expenditure, borrowing and management of public debt.
• Fiscal Deficit. The gap between the government's total spending. The sum of its revenue receipts and non-debt capital receipts. It equals total borrowings required.
• Budget Deficit – The difference between estimated public expenditure and public revenue. Met by printing new currency or borrowing.
• Primary Deficit – Fiscal Deficit minus interest payments (borrowings).
• Fiscal Drag. The tendency of tax revenue to rise as a share of GDP in a growing economy.
• Fiscal Neutrality. When the net effect of taxation. Spending neither stimulates nor dampens aggregate demand.
• Direct Tax – A tax whose burden cannot be shifted. Borne by the person on whom it is levied (e.g.. Personal income tax, death duty).
• Indirect Tax. A tax not paid directly by the consumer. Passed on through higher prices (e.g.. Fuel tax).
• Tax Haven – A country or zone with very low or no taxes.
• Tax Avoidance – A legal action to reduce or eliminate taxes owed.
• Tax Evasion – An illegal strategy to cut tax — underreporting income. Overstating deductions or using illegal shelters.
• Laffer Curve. Shows the relationship between total tax revenue and the corresponding tax rate.
• Crowding Out. When excessive government borrowing pushes up interest rates. Discourages private borrowing and investment.

Money, Monetary Policy and Banking-Linked Concepts

As a future banker, these are your home turf. They also connect directly to how the Reserve Bank of India manages the economy.

• Money – Anything accepted as a medium of exchange. Measure of value, standard for deferred payments and store of value.
• Money Supply. The total stock of money in the economy. Currency held by the public plus bank deposits — measured as M1. M2, M3 and so on.
• Monetary Policy. The regulation of money supply. Interest rates by a central bank to control inflation. Stabilise the currency.
• Real Interest Rate – The nominal interest rate less the rate of inflation.
• Gresham's Law – Bad money. If not limited in quantity, drives good money out of circulation.
• Pigou Effect. A fall in the price level raises the real value of savings. Making people feel wealthier, spend more and potentially raise employment.
• Currency Board. A monetary arrangement committing a country to convert its currency on demand at a fixed exchange rate. Defending against speculative attack.
• Currency Peg. When a government fixes its currency's exchange rate against another currency or currencies.
• Hard Currency. A currency expected to retain value or appreciate against softer currencies.

International Economics and Exchange-Rate Terms

Globalisation made these mainstream in the ABM paper. Pay special attention to PPP and the real-versus-nominal distinctions.

• Real Exchange Rate. An exchange rate adjusted for differences in inflation between two countries.
• PPP (Purchasing Power Parity). The exchange rate that equates the price of an identical basket of traded goods. Services in two countries.
• Tobin Tax. A proposed small tax on foreign-exchange transactions to curb speculative cross-border capital flows.
• Aggregate Demand – The sum of all demand in an economy — consumption. Investment and net exports.
• Aggregate Supply. The total value of goods and services produced in a country. Plus imports less exports.

Famous Economic Laws, Curves and Effects

If you remember nothing else, remember the named laws. They are short, quotable and almost always on the paper.

• Lorenz Curve. A graph showing the degree of income or wealth inequality in a distribution.
• Pareto Efficiency. A situation in. Nobody can be made better off without making someone else worse off.
• Okun's Law – Links the GDP gap to unemployment. A 2.5% rise in real GDP above trend leads to a 1% fall in unemployment.
• Phillips Curve – The inverse relationship between inflation and unemployment; growth brings inflation. Which brings more jobs.
• Laffer Curve. The relationship between tax revenue. The tax rate (also listed under fiscal terms. Worth double-marking).

Economic Systems and Sectors

These framework terms help you classify any economy a case study throws at you.

• Capitalism – A system of private ownership of the means of production. Commodity production and profit as the prime motive.
• Market Economy – A system where what. How. For whom are decided by free market forces of supply and demand.
• Centrally Planned Economy – A system where production. Pricing and distribution are set by the government rather than markets. Also called a command or non-market economy.
• Planned Economy – A system in which basic decisions follow a central plan.
• Mixed Economy – An economy where the state and private sector coexist. With resources allocated partly by markets and partly by government.
• Broad Sectors of an Economy – In India: Primary (agriculture). Secondary (industry) and Tertiary (services).
• Macroeconomics – The study of broad aggregates such as national income. Saving, investment, employment and money supply.
• Microeconomics. The study of individual units. Firms and households — and how their interactions set relative prices.
• Economic Policy. A statement of government objectives and the instruments used to achieve them. Such as full employment, growth and price stability.
• Base Year – In index construction. The reference year from which weights are drawn. Its index value is set to 100.

Quick-Facts Table: 12 Terms Examiners Love

How to Study These ABM Economic Terms (Practical Plan)

Definitions are easy to read and easy to forget. Beat the forgetting curve with a simple, repeatable routine.

1. Chunk it. Learn one section a day — national income today, inflation tomorrow. Small wins compound.
2. Active recall. Cover the definition, say it aloud, then check. Passive reading does not stick.
3. Use memory hooks. "Bad drives out good" for Gresham, "price up, demand up" for Giffen.
4. Group the confusing pairs. Fiscal vs budget vs primary deficit. GDP vs GNP; inflation vs disinflation vs deflation.
5. Test under time. Finish each block with a short quiz on our mock tests so recall survives exam pressure.
6. Revise in cycles. Revisit on day 1, day 3, day 7 and day 15. Spaced repetition is your friend.

For deeper, chapter-wise notes and worked examples, browse our free guides alongside this glossary.

Common Mistakes Candidates Make with Economic Terms

Most lost marks here are avoidable. Watch for these traps before exam day.

• Confusing GDP with GNP. Remember: GNP = GDP + net factor income from abroad.
• Mixing up the deficits. Fiscal, budget and primary deficits have different formulas — do not blend them.
• Treating disinflation as deflation. Disinflation is a slower rise; deflation is an actual fall.
• Forgetting which laws are exceptions. Giffen goods break the law of demand. That is the whole point of the question.
• Swapping tax avoidance and evasion. Avoidance is legal; evasion is illegal.
• Rote-learning without application. Case studies ask you to use the term, not just recite it.

Frequently Asked Questions (FAQ)

What is the difference between GDP and GNP in the CAIIB ABM exam?

GDP (Gross Domestic Product) measures the value of all final goods. Services produced within a country's domestic territory. Regardless of the producers' nationality.

GNP (Gross National Product) adds net factor income from abroad. Earnings by residents abroad minus earnings by foreigners within the country. To that GDP figure.

What is the difference between fiscal policy and monetary policy?

Fiscal policy is the government's use of taxation. Public expenditure to influence the economy. Monetary policy is the central bank's control of money supply. Interest rates to manage inflation and stabilise the currency. Both are macroeconomic tools, but they are operated by different authorities.

What are Giffen Goods and how do they differ from normal goods?

Giffen Goods are inferior goods whose demand rises when the price rises. Violating the normal law of demand. This happens.

The income effect of the price rise outweighs the substitution effect. Normal goods follow the standard law of demand. Where higher prices reduce demand.

What does the Lorenz Curve indicate?

The Lorenz Curve shows the distribution of income or wealth in an economy. Perfect equality appears as a straight diagonal line. The line of perfect equality. The further the actual curve bows away from this line. The greater the inequality.

How is the Phillips Curve relevant to banking and monetary policy?

The Phillips Curve is central to monetary-policy decisions. It implies a trade-off: expansionary policy aimed at cutting unemployment can raise inflation. While tightening policy to control inflation can raise unemployment.

The Reserve Bank of India weighs this relationship when setting policy. For the latest stance and figures. Confirm on the latest official IIBF notification and RBI updates.

Conclusion: Turn These Terms Into Easy Marks

Mastering these CAIIB ABM economic terms is one of the highest-return moves in your entire preparation. They appear directly in objective questions. Quietly power the case-study sections too.

Read a block daily. Test yourself with active recall, and revise in spaced cycles. Do that.

And on exam day these definitions will feel automatic. Which is exactly when they become free marks. For the latest CAIIB ABM schedule and syllabus details.

Always confirm on the latest official IIBF notification.

You have got this. Stay consistent. Trust the process, and walk into the hall knowing the vocabulary cold.

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