NISM Series XV · Unit 5 of 15 · about 5% of the paper
Economic analysis: NISM Series XV notes and practice questions
How the economy drives sectors and stocks: growth, inflation, policy and the cycle.
What to know in Unit 5
- GDP, inflation, fiscal and monetary policy.
- Business cycle and indicators.
Key terms, examples and exam traps
GDP
Gross Domestic Product is the total value of goods and services produced within a country in a period, a measure of economic activity.
Example. A country's total output for the year rises 6.5%.
Exam trap. This statement is false: GDP is the total government spending.
Inflation
Inflation is the sustained rise in the general price level, measured in India by the Consumer Price Index and the Wholesale Price Index.
Example. The general price level rises 5% compared with last year.
Exam trap. This statement is false: Inflation is a fall in the general price level.
CPI and WPI
CPI measures changes in retail prices faced by consumers, while WPI measures wholesale prices of goods. The RBI targets CPI inflation.
Example. The policy target is based on retail prices.
Exam trap. This statement is false: The RBI targets WPI inflation.
Fiscal deficit
The fiscal deficit is government expenditure minus revenue (excluding borrowings), showing how much the government must borrow.
Example. The government spends ₹50 lakh crore against receipts of ₹45 lakh crore.
Exam trap. This statement is false: The fiscal deficit equals the trade deficit.
Current account deficit
The current account deficit arises when a country's imports of goods, services and transfers exceed its exports.
Example. India buys more from the world than it sells.
Exam trap. This statement is false: A current account deficit means the government has a budget deficit.
Monetary policy
Monetary policy is the central bank's use of interest rates and liquidity tools to manage inflation and growth.
Example. The RBI raises the repo rate to control prices.
Exam trap. This statement is false: Monetary policy is set by the finance ministry.
Fiscal policy
Fiscal policy is the government's use of taxation and spending to influence the economy.
Example. The government cuts taxes to stimulate demand.
Exam trap. This statement is false: Fiscal policy is set by the central bank.
Business cycle
The business cycle consists of expansion, peak, contraction and trough, with different sectors outperforming in each phase.
Example. An economy moves from recovery to boom and then slowdown.
Exam trap. This statement is false: The economy grows in a straight line without cycles.
Leading indicators
Leading indicators such as new orders and PMI change before the economy turns and help forecast direction.
Example. A rise in new orders signals growth ahead.
Exam trap. This statement is false: Leading indicators change after the economy turns.
PMI
The Purchasing Managers' Index surveys business activity; a reading above 50 indicates expansion and below 50 contraction.
Example. A manufacturing PMI of 56 shows expansion.
Exam trap. This statement is false: A PMI below 50 shows expansion.
IIP
The Index of Industrial Production tracks changes in the volume of production in mining, manufacturing and electricity.
Example. A monthly number shows industrial output rising 4%.
Exam trap. This statement is false: IIP measures retail inflation.
Exchange rate impact
A weaker rupee helps exporters' revenues but raises import costs, affecting sectors differently.
Example. IT exporters gain when the rupee depreciates.
Exam trap. This statement is false: A weaker rupee hurts all companies equally.
Interest rate impact
Higher interest rates raise borrowing costs and discount rates, which usually pressure valuations and rate-sensitive sectors.
Example. A rate hike hurts real estate and auto stocks.
Exam trap. This statement is false: Higher interest rates always lift all share prices.
6 practice questions
Read each question and choose your answer before opening the free mock, which shows the correct answer and the reason.
Q1. Which term is described here? The Index of Industrial Production tracks changes in the volume of production in mining, manufacturing and electricity.
- Credit spread
- RSI
- Industry life cycle
- IIP
Q2. Which statement best describes “Fiscal deficit”?
- A simple moving average is the average closing price over a set number of periods, smoothing price data to show the trend.
- Sell-side analysts work for brokers and publish research for clients; buy-side analysts work for fund managers and research for their own investment decisions.
- The fiscal deficit is government expenditure minus revenue (excluding borrowings), showing how much the government must borrow.
- Relative strength compares a security's performance with a benchmark or peers to identify leaders and laggards.
Q3. Which statement best describes “Interest rate impact”?
- Higher interest rates raise borrowing costs and discount rates, which usually pressure valuations and rate-sensitive sectors.
- The ex-dividend date is the date from which a share trades without the right to the declared dividend; buyers on or after it do not receive it.
- Transparent, timely and consistent disclosure builds trust; poor or selective disclosure is a warning sign.
- A bullish engulfing pattern is a large up candle that completely covers the previous down candle, suggesting a reversal upwards.
Q4. Which statement best describes “Leading indicators”?
- Leading indicators such as new orders and PMI change before the economy turns and help forecast direction.
- Asset turnover is revenue divided by total assets and shows how efficiently assets generate sales.
- Market capitalisation is share price multiplied by shares outstanding, and classifies companies as large, mid or small cap.
- The Index of Industrial Production tracks changes in the volume of production in mining, manufacturing and electricity.
Q5. Which statement best describes “Monetary policy”?
- A demerger splits a business into two or more entities, and shareholders receive shares in the new entity in a given ratio.
- Environmental, social and governance factors affect long-term risk and returns and are increasingly part of research.
- Every recommendation must have a reasonable basis supported by research and data, not mere speculation or rumour.
- Monetary policy is the central bank's use of interest rates and liquidity tools to manage inflation and growth.
Q6. Which statement about “GDP” is correct?
- Capital allocation means issuing more debt.
- Gross Domestic Product is the total value of goods and services produced within a country in a period, a measure of economic activity.
- GDP is the total government spending.
- The security market line plots return against standard deviation.
Frequently asked questions
How much of NISM Series XV comes from Unit 5?
Unit 5 (Economic analysis) usually carries about 5% of the questions. The whole exam has 100 questions and the pass mark is 60%.
What should I study in NISM Series XV Unit 5?
GDP, inflation, fiscal and monetary policy. Business cycle and indicators.
Are these NISM Series XV practice questions free?
Yes. Take the full free mocks to see the correct answer and the reason for every question.
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