Nepal Rastra Bank - Assistant

Economics Notes

➢ Pre-Test & Written Paper

| NRB - 4th | Pre-Test & 2nd Paper | Section-A (40 Marks) | Economic |

Economic Syllabus for NRB Assistant

Note By Nirajan Raut Sir | Miras Academy

Table of Contents:

S. No.: Topics Page No.

1 Concept of Economics (Micro & Macroeconomics) 3
2 Facets of Nepalese Economics 37
3 Macroeconomics Indicators… 53
4 Monetary, Fiscal, Trade, Commercial Policies 179
5 Challenges of Economics Development in Nepal 187
6 Planning and Economic Development 189
7 Government Budget, its types and importance 192
8 Financial Sector Reforms 198
9 Role of World Bank, ADB, AIIB, IMF in E. D. of Nepal 201

Note By Nirajan Raut Sir | Miras Academy

 1. Concept of Economics (Microeconomics & Macroeconomics)

Social Science → Political Science → Economic1776

“Deals with how limited resources are rationally managed (or optimally
utilized).”

T.U started teaching Economics in (25 June 1969) (2016 B.S)

Can you buy all that you want to buy at a point of time?
'No' Because (i) Your wants are unlimited.
(ii) Your means (resources to satisfy wants) are limited

Note: The scarcity of resources is a hard fact of life. It is a universal problem.

It exists both at the individual level called the micro level and the level of the
country as a whole called the macro level.

Economic Problem:
The economic problem is the problem of rational management of resources or
the problem of optimum utilization of resources. It arises because.
(i) Resources are scarce (Demand > Supply)
(ii) Resources have alternative uses.

Economics:
The term economics has been derived from the Greek word 'Oeconomicus' or
'Okoinomikos'. Xenophon used this term for the first time. If we look at the
composition of this word it consists of' 'Okoi' which means household and
'nomikos' means management, thus the term economics has been used as
household management for the first time.

Economics is a subject matter that deals with the rational management of

limited resources (in relation to unlimited wants) in a manner such that, at the
micro level, an individual consumer is able to maximize his satisfaction and an
individual producer is able to maximize his profit; and at the macro level, a
country is able to achieve highest possible GDP growth and highest possible
social welfare.

Note By Nirajan Raut Sir | Miras Academy

In Brief,
We can state the economics in the study of optimum utilization of scarce
resources in a manner such that the individual gain is maximized at the macro
level and social gain is maximized at the macro level.

Desire: You wish to have

Wants: Desire + would like to have

Note: Scarce Resources

Scarce goods are those for which demand would excess supply it they were
free.
i.e., Demand for a natural resource is greater than the available supply.
Note:
➢ Limited Resources: Land, Labour, Capital & Raw materials
➢ Rational Management of Resources
✓ Optimum utilization of resources

Background Economics
Further economics is divided into 3 period.
(i) Classical period (1776 - 1890)
(ii) Neo-classical period (1890 - 1932)
(iii) Modern Period (1932 - Present)

Explanation:
Classical Economics (1776-1890)
➢ Father of Economics as well as the father of Classical Economics -
Adam Smith
➢ His book: “An Inquiry into the Nature and Cause of Wealth of Nations.”
➢ Published: 1776 A.D
➢ Also called: The Wealth of Nations
➢ Definition: Wealth definition
➢ According to Adam Smith,
Economics is defined as, "An Inquiry into the Nature and Causes of the Wealth
of Nations,"

Highlights:
✓ Wealth is at the center of economics.
✓ Wealth is the only means to fulfill all human needs.
✓ Economics only related to economic man.

Note By Nirajan Raut Sir | Miras Academy

 ✓ Wealth is the primary thing people come after the wealth.
✓ The source of wealth is the employed labor.
✓ Only tangible things come under wealth.
✓ There is always full employment in the economy.
Features:
✓ Study of wealth,
✓ Study of economics,
✓ Meaning of wealth,
✓ Source of wealth, (gold, silver, car, home....) (material goods)
✓ Primary importance is given to wealth rather than health.

Criticisms of Classical Definition:

✓ Narrow view of the subject matter (Only the study of material goods)
✓ Too much importance to wealth,
✓ Unrealistic concept of economic man,
✓ Source of wealth (Only Material Goods (Goods) but not including Non-
material Goods (Services)),
✓ Neglects human welfare.

Notes:

Neo-classical period (1890 - 1932)

➢ Father: Alfred Marshall
➢ Book: Principle of Economics
➢ Published: 1890
➢ Definition: The science of the material welfare of mankind.
(It focuses on both the study of wealth as well as the importance of
mankind.)

Note By Nirajan Raut Sir | Miras Academy

According to Marshall,
Economics is the study of mankind in the ordinary business of life; it examines
that part of individual and social action which is most closely connected with the
attainment and with the use of material requisites of well-being.
Thus, it is on the one side, a study of wealth and on the other and more important
side, a part of the study of man.

Highlights:
➢ Greater emphasis on human aspects
➢ Mankind is at the center of the study
➢ Both tangible and intangible goods are regarded as wealth
➢ Gave more importance to the means of material gains or material welfare.
➢ Paid emphasis to the Ordinary Business Activities. These ‘ordinary
business activities’ refers to those economic activities, which are related to
the attainment and utilization of wealth.

Features:
✓ Primary importance to mankind,
✓ Study of the ordinary business of life,
✓ Study of Material Welfare,
✓ Social science,
✓ Normative science.

Criticisms of Neo-Classical Definition:

✓ Scope of economics,
✓ Lack of clear concept of welfare,
✓ Economy is a positive science,
✓ Economics is a human sense.
✓ Definition of classificatory nature.

Note:

Note By Nirajan Raut Sir | Miras Academy

Modern Economics (1932 - Present)
➢ Father: Lionel Robbins
➢ Book: An Essay on the Nature and Significance of Economic Science
➢ Published:1932
➢ Definition: Scarcity and Choice (means & ends)
According to Lionel Robbins,
“Economics is the science which studies human behavior as a relationship
between ends and scars means which have alternative uses.”

Highlights:
✓ Human Needs and wants are unlimited.
✓ Resources are always limited and scarce.
✓ Resource has an alternative use.
✓ The best choice is needed.
✓ A universal definition of economics.
✓ Defined economics as positive/real science.

Features:
✓ Unlimited human wants,
✓ Limited or scarce resources,
✓ Alternative usage of scarce resources,
✓ Science of choice,
✓ Wants are of different intensities (not all wants are urgent) eg. a Sick person
needs medicine first rather than fruits.

Criticisms of Modern Definition:

✓ Self-contradictory (Between choice & ends),
✓ Hidden concept of welfare,
✓ Economics problems may be originated from excess supply,
✓ Incomplete definition (Neglect present economic problems),
✓ Economics is not only a positive science (Positive as well as normative
science).

Note By Nirajan Raut Sir | Miras Academy

Note:

Positive Economics Vs Normative Economics

➢ Positive economics describes and explains various economic phenomena.

➢ Normative economics focuses on the value of economic fairness, or what
the economy "should be" or "ought to be."
➢ While positive economics is based on fact and cannot be approved or
disapproved, normative economics is based on value judgments.
➢ Most public policy is based on a combination of both positive and
normative economics.

Positive economics. Normative economics.

Positive economics deals with the Normative economics deals with the
economic issue (Or economic opinions of the economist related to
behaviour) related to the past, economic issues or economic
present, and future. problems.
Statements of positive economics Statements of normative economics
related to what was, what is, and related to what ought to be?
what would be.
Statements of positive economics are Normative statements cannot be
not necessarily statements of truth. termed as true or false. These
This may be true or false. statements involve opinions only.
Example. Some say the population of
India is more than the population of Example. Some say that old-age
China. It is a positive statement, but pensions should be stopped. It is just
it is wrong. One can verify it. an opinion.

Note By Nirajan Raut Sir | Miras Academy

 Facts and Figures as elements of Normative statements are not
positive economics are verifiable for verifiable at all.
truth.
Positive economics does not involve Normative economics involves value
value judgment. judgment.
It deals with how an economic It deals with how an economic
problem is solved. problem should be solved.
Economists of Positive School are Economists of the normative school
Adam Smith and Lionel Robbins. are Alfred Marshall, A.C Pigou,
Milton. Fredman etc. Irving Fisher, etc.

In Short:
Feature Positive Economics Normative Economics
Focus What is? What ought to be?
Empirical data, scientific Ethical principles, economic
Methodology methods models
Goals Describe, explain, understand Evaluate, prescribe, recommend
Value Judgments Objective, unbiased Explicitly present, influential

Microeconomics Vs Macroeconomics
Types of Economics
Based on the study matter, scope, and nature economics can be broadly divided
into the following two branches:
➢ Microeconomics
➢ Macroeconomics
➢ The terms micro and macro were first introduced by Norwegian
Professor Ranger Frisch in 1933. He won the First Novel Prize in
Economics in 1969 for his contribution to the development of micro and
macroeconomics as separate subjects.

Explanation:

Note By Nirajan Raut Sir | Miras Academy

Microeconomics

➢ The term micro has been originated from Greek word 'Mikros' which
means very small. So microeconomics deals with small unit of the
economic system

➢ Microeconomics is a branch of economics that focuses on the behavior of

individual decision-makers: households, firms, and individuals, and how
their interactions influence the allocation of resources and the prices of
goods and services.

➢ Microeconomics is a branch of economics that focuses on the behavior of

individuals and firms in making decisions regarding the allocation of
scarce resources and their interactions within markets.

➢ Microeconomics studies the decisions of individuals and firms to allocate

resources for production, exchange, and consumption.

➢ Microeconomics deals with prices and production in single markets and

the interaction between different markets but leaves the study of economy-
wide aggregates to macroeconomics.

Concept of Microeconomics:
Microeconomics is a powerful tool for understanding how the economy works. It
can be used to analyze a wide range of issues, such as the effects of government
policies, the impact of technological change, and the causes of poverty and
inequality.
Here are some additional points to note about the scope of microeconomics:
✓ Microeconomics is often contrasted with macroeconomics, which is the
branch of economics that studies the economy as a whole.
Macroeconomics focuses on issues such as aggregate output, inflation, and
unemployment.

✓ Microeconomics is based on several assumptions, such as rational behavior

and perfect information. These assumptions are not always realistic, but
they can help simplify complex economic problems.

✓ Microeconomics is a constantly evolving field, and new theories and

models are being developed all the time. This is because the economy is

Note By Nirajan Raut Sir | Miras Academy

 constantly changing, and macroeconomists need to find new ways to
understand and explain it.

Where Is Microeconomics Used?

Microeconomics has a wide variety of uses. For example, policymakers may use
microeconomics to understand the effect of setting a minimum wage or
subsidizing the production of certain commodities. Businesses may use it to
analyse pricing or production choices. Individuals may use it to assess purchasing
and spending decisions.

Basic Concepts of Microeconomics

The study of microeconomics involves several key concepts, including (but not
limited to):

Incentives and behaviors: How people, as individuals or in firms, react to the

situations with which they are confronted.

Utility theory: Consumers will choose to purchase and consume a combination

of goods that will maximize their happiness or “utility,” subject to the constraint
of how much income they have available to spend.

Production theory: This is the study of production or the process of converting

inputs into outputs. Producers seek to choose the combination of inputs and
methods of combining them that will minimize cost in order to maximize their
profits.

Price theory: Utility and production theory interact to produce the theory of
supply and demand, which determine prices in a competitive market. In a
perfectly competitive market, it concludes that the price demanded by consumers
is the same supplied by producers. That results in economic equilibrium.

Scope of Microeconomics:
Demand and supply:
This is the most fundamental concept in microeconomics, and it explains how the
interaction of consumers' willingness to buy (demand) and producers' willingness
to sell (supply) determines the price and quantity of goods and services in a
market.

Note By Nirajan Raut Sir | Miras Academy

Fig: Demand and supply curve

Market structures:
This area of microeconomics examines different types of markets, such as perfect
competition, monopoly, monopolistic competition, and oligopoly, and how the
behaviour of firms and consumers differs in each type of market.

Consumer behaviour:
This area of microeconomics studies how consumers make decisions about what
to buy, how much to buy, and how to spend their money. It takes into account
factors such as income, prices, preferences, and information.

Note By Nirajan Raut Sir | Miras Academy

Production and cost theory:
This area of microeconomics examines how firms produce goods and services,
and how their costs are affected by factors such as the price of inputs, technology,
and the scale of production.
Welfare economics:
This area of microeconomics is concerned with evaluating the efficiency and
fairness of different economic outcomes. It asks questions such as whether
markets are allocating resources efficiently, and whether everyone is benefiting
from the current economic system.

In other ways, we can also describe it as Scope.

Theory of Demand: This includes the meaning, types, laws, and determinants of
demand, the elasticity of demand, the law of diminishing utility, the law of equip-
marginal utility, indifference curve, revealed preference theory, and so on.
Besides, the practical importance of these theories is also included in
microeconomics.

Theory of production and costs: One of the important branches of economics

is production and cost theory. The theory of production consists of the factors of
production, concepts of different types of products, and the theories like law of
variable proportions, laws of returns to scale, least-cost combinations of inputs,
and so on. Similarly, the theory of costs consists of the different concepts of cost,
the nature of short-run and long-run costs, etc.

Note By Nirajan Raut Sir | Miras Academy

Theory of product pricing: The relative price of different goods is determined
under different market situations i.e. perfect competition, monopoly monopolistic
competition, and oligopoly and so on. This comprises the study of the costs,
revenue, profit, position of loss and the behavior regarding profit maximization
or cost minimization. Hence, the theory of product pricing is also known as the
theory of the firm.
Theory of factor pricing: In factor pricing, the determination of rent wages,
interest, and profit is studied. There are different traditional and modern theories
regarding the determination of the rewards of factors of production.

Theory of Economic Welfare: The Law of economic efficiency falls under this
theory.
Uses of Microeconomics
✓ Understand the workings of the economy,
✓ Efficient allocation of resources,
✓ Useful in business decision-making,
✓ Study of human behavior,
✓ Examine conditions of economic welfare,
✓ Formulation of public policies,
✓ Solution of contemporary microeconomic problems.

Limitations of Microeconomics
✓ It does not solve broad macroeconomic problems like poverty,
unemployment, hyperinflation, economic depression, etc.
✓ It is less useful in formulating macroeconomic policies like monetary
policy, fiscal policy, industrial, etc.
✓ It is not complete itself.
✓ Decision may not be applicable in the Whole Economy
Macroeconomics
➢ Macroeconomics is the study of aggregates and averages of the entire
economy. The word macro is derived from the Greek word 'Makros' which
means very large, so macroeconomics focuses on a large part of the
economy.

➢ Macroeconomics is a branch of economics that studies the behavior of an

overall economy, which encompasses markets, businesses, consumers, and
governments.

Note By Nirajan Raut Sir | Miras Academy

 ➢ Macroeconomics examines economy-wide phenomena such as inflation,
price levels, rate of economic growth, national income, gross domestic
product (GDP), and changes in unemployment.

➢ Some of the key questions addressed by macroeconomics include: What

causes unemployment? What causes inflation? What creates or stimulates
economic growth?
➢ Macroeconomics attempts to measure how well an economy is performing,
understand what forces drive it, and project how performance can improve.

Highlights
✓ Macroeconomics is the branch of economics that deals with the structure,
performance, behavior, and decision-making of the whole, or aggregate,
economy.
✓ The two main areas of macroeconomic research are long-term economic
growth and shorter-term business cycles.
✓ Macroeconomics in its modern form is often defined as starting with John
Maynard Keynes and his theories about market behavior and governmental
policies in the 1930s; several schools of thought have developed since.
✓ In contrast to macroeconomics, microeconomics is more focused on the
influences on, and choices made by individual actors—such as people,
companies, and industries—in the economy.

Scope of Macroeconomics

✓ Theory of Income and Employment

In it, the formulation of income and Employment level is done and the
study of consumption, function, investment, function, multiple, and
accelerator is also done.

✓ Theory of General Price Level

In it, the formulation of the general price level is studied, and problems
related to inflation, and deflation are a prime subject matter of Macro
Economics

✓ Macro-Theory of Distribution
In macroeconomics study of the Distribution of wages and profits in
national income is done. So, it is clear that the scope of macroeconomics
is very wide.

Note By Nirajan Raut Sir | Miras Academy

 ✓ Theory of Development and Planning
For a fast and balanced development, developing countries apply many
economic theories. So, the study of processes and theories of economic
development and planning is also an important subject matter
of macroeconomics.

✓ Theory of International Trade and Foreign Exchange

It is also a subject matter of Macroeconomics. Under its theory of
International Trade, terms of trade, determination of foreign exchange
rates, etc are studied.

✓ Theory of trade cycle

In the macroeconomics study of trade, the cycle is done. The factors of
Boom and Depression in the trade cycle, their effects, and removal of these
effects are studied in Macro Economics.

Limitations of Macro-economics

➢ Importance not given to Individual Units. ...

➢ Possibility of Wrong Predictions. ...
➢ Difficult to find Macro Quantities. ...
➢ No Attention to Structure and Composition of Group

Microeconomics Vs Macroeconomics

Microeconomics Macroeconomics
It is concerned with the study of the It studies the economic behavior of the
economic behavior of individual economy as a whole
units.
Classical and Neo-classical J.M Keynes and his followers have
Economists have contributed to the contributed to the development of this
development of this economy. economics
It assumes there is full employment It assumes there is always less than full
in the economy employment in the economy
It originated from the Greek word It originated from the Greek Word
Mikros which means very small Makros which means very large
The price mechanism is the tool of National Income and Employment are
microeconomic study the tools of macro-economic analysis
Very useful in price determination Very useful in solving macroeconomic
and managerial decisions. problems.

Note By Nirajan Raut Sir | Miras Academy

In other ways:
Microeconomics Macroeconomics
It deals with economic issues related Macroeconomics deals with economic
to a small unit: an individual firm, an issues at the level of the economy as a
individual household, or an whole.
individual consumer.
Microeconomics is concerned with Macroeconomics is concerned with the
the determination of Prices in the determination of aggregate output and
market. Accordingly, it is often general price level in the economy as a
called ‘The Theory of Price’. whole. Accordingly, it is often called
‘The Theory of Income and
Employment’.
The study of microeconomics The study of macroeconomics assumes
assumes that macro variables remain that macro variables remain constant.
constant. Thus, it is assumed that the Thus, it is assumed that the distribution
general price level is constant while of GDP remains constant when we are
we are starting the determination of studying the level of GDP in the
price in the individual market. economy.
The principal components of Principal components of
microeconomics are: macroeconomics are (a)Theory related
(a) Theory of Consumer Behaviour, to Equilibrium in the Economy (AS =
(b)Theory of Producer Behaviour, AD), Theory related to Disequilibrium
and (c) Theory of price. or Theory related to Inflationary and
Deflationary Gap in the Economy, and
(c) Theory related to Correction of
Disequilibrium: Monetary Policy, Fiscal
Policy and Exchange Rate Policy.
Its method of study is partial Its method of study is generally
equilibrium analysis, i.e. other things equilibrium analysis.
remaining the same.
Microeconomics is also called as Macroeconomics is also called as theory
price theory. of income and Employment or
Keynesian Theory or Aggregate
Economy.
Assignment:
Q. Define Micro-economics and Macro-economics. Which definition of
Micro-economics is considered more suitable? and why? Justify (6 + 4)
(2076)

Note By Nirajan Raut Sir | Miras Academy

 Multiple Choice Questions
1. The words "macro" and "micro" originate from.... ('माइक्रो' तथा 'म्याक्रो' शब्द
... भाषाबाट लिइएको हो ।)
A. Greek Language (ग्रीक भाषा)
B. Latin Language (िेटटन भाषा)
C. French Language (फेन्च भाषा)
D. Russian Language (रलियन भाषा)
2. Which of the following does not fall within the macroeconomics topic? (तिका
मध्ये कुन बह
ृ त अथथशास्त्रको विषयिस्त्तु लभर पदे न?)
A. Aggregate demand (िमग्र माग)
B. Market demand of a commodity (कुनै िस्त्तुको बजार माग)
C. Aggregate supply (िमग्र आपर्ू तथ)
D. General price level (िामान्य मूल्य स्त्तर)
3. Which of the following statements is not true? (तिका मध्ये कुन भनाई िही
होइन?)
A. There is no interdependence between micro and macroeconomics. (िुक्ष्म
अथथशास्त्र तथा िह
ृ त अथथशास्त्रका बीचमा कुनै अन्तरिम्िन्ध हुदैन।)
B. General price level, employment and national saving are the subject matter
of macroeconomics. (िामान्य मूल्यस्त्तर, बेरोजगारी र राष्ट्रिय बचत बह ृ त
अथथशास्त्रका विषयिस्त्तुहरू हुन।)
C. The study of behaviour of a consumer, a producer and a market come under
microeconomics. (कुनै उपभोक्ता, उत्पादन तथा बजारको व्यिहारको अध्ययन
िक्ष्
ु म अथशाथस्त्रको पररधध लभर पदथ छ।)
D. Microeconomics does not study about aggregate macroeconomic problems
(अथथशास्त्रिे िमस्त्टीगत आधथथक िमस्त्याहरूको बारमे अध्ययन गदे न ।)
4. Which individual is referred to as a welfare economist? (तिको मध्ये कुन
अथथशास्त्रीिाई कल्याण अथथशास्त्रीको रूपमा धचर्नन्छ?)
A. Kaldor and Hicks (काल्डर तथा टहक्ि)
B. Scitovsky (लिटोभष्ट्स्त्क)

Note By Nirajan Raut Sir | Miras Academy

 C. Pareto and Edgeworth (परे टो तथा ऐजिथथ)
D. All of them (माधथका िबै)
5. As a positive science, who defined economics? (कुन अथथशास्त्रीिे अथथशास्त्रिाई
िास्त्तविक विज्ञानको रूपमा पररभावषत गरे ?)
A. Alfred Marshall (अल्रेड माशथि)
B. Adam Smith (आडम ष्ट्स्त्मथ)
C. Leonel Robbins (लियोनेि रबबन्ि)
D. Viner (भाइनर)
6. The problem of choice arises due to... (छनौटको िमस्त्या…िे गदाथ उत्पन्न हुन्छ
।)
A. Scarcity of resources (स्रोत िाधनको दि
ु भ
थ ता)
B. Abundance of resources (स्रोत िाधनको प्रयाथप्तता)
C. Abundance of utility (उपयोधगताको प्रयाथप्तता)
D. Consumer theory (उपभोक्ता लिद्धान्त)
7. Per capita income is concerned with... ( प्रर्त व्यष्ट्क्त आय...िँग िम्बष्ट्न्धत हुन्छ
।)
A. Microeconomics (िुक्ष्म अथथशास्त्र)
B. Macroeconomics (बह
ृ त ् अथथशास्त्र)
C. Price Theory (मूल्य लिद्धान्त)
D. Consumer Theory (उपभोक्ता लिद्धान्त)
8. Match the Following (जोडा लमिाउनह
ु ोि ् ।)
a. िूक्ष्म अथथशास्त्रको क्षेर 1. िस्त्तक
ु ो मूल्य र्नधाथरण लिद्धान्त
b. िूक्ष्म अथथशास्त्रको िीमा 2. उत्तम उत्पादन र्नणथय
c. िक्ष्
ू म अथथशास्त्रको महत्ि 3. िमग्र चरका िाधग तथ्याङ्क उपिब्ध गराउँ दछ
d. िूक्ष्म अथथशास्त्र तथा बह
ृ त ् अथथशास्त्र बीचको परर्नभथरता 4. अन्य कुरा
यथाित रहन्छ भन्ने मान्यता
Codes

Note By Nirajan Raut Sir | Miras Academy

 A. a-3, b-1, c-2, d-4
B. a-1, b-2, c-3, d-4
C. a-2, b-3, c-4, d-1
D. a-1, b-4, c-2, d-3
9. Microeconomics is also known as... (िुक्ष्म अथथशास्त्रिाई ... भनेर पर्न धचर्नन्छ
।)
A. Price Theory (मल्
ू य लिद्धान्त)
B. Demand and Supply Theory (माग तथा आपूर्तथ लिद्धान्त)
C. Market Theory (बजार लिद्धान्त)
D. Equilibrium Theory (िन्ति
ु न लिद्धान्त)
10.Which topic falls under the umbrella of macroeconomics? (तिका मध्ये कुन
बह
ृ त ् अथथशास्त्रको विषयिस्त्तु लभर पदथ छ?)
A. Income and Employment (आय तथा रोजगारी)
B. International Trade (अन्तराथष्ट्रिय व्यापार)
C. Inflation and Interest Rate (मुद्रास्त्फीर्त तथा व्याजदर)
D. All of the above (माधथको ििै)
11.Which of the following is not Normative economics? (तिका मध्ये कुन आदशथ
अथथशास्त्र अन्तगथत पदै न)
A. Based on value of judgments and subjective analysis.
B. Shows cause and effect relationship among variables
C. It based on ideas, opinion, issues and views and cannot be tested.
D. It gives recommendations and prescerptive science.
12.Which of the following cannot be considered as a basic economic problem?
(तिको मध्ये कुन प्रमुख आधथथक िमस्त्या होइन?)
A. What to produce? (के उत्पादन गने?)
B. Why produce? (ककन उत्पादन गने?)
C. How much to produce? (कर्त उत्पादन गने?)
D. For whom to produce?) (किका िाधग उत्पादन गने?)
13.Match the Following (जोडा लमिाउनुहोि ् ।)

Note By Nirajan Raut Sir | Miras Academy

 a. एडम ष्ट्स्त्मत (Adam Smith) 1. अथथशास्त्तको लिद्धान्त
b. अल्रेड माशथि (Alfred Marshall) 2. रोजगारी, ब्याजदर तथा मद्र
ु ाको िामान्य
लिद्धान्त
c. लियोनेि रविन्ि (Lionel Robbins) 3. िेल्थ अफ नेिन्ि
d. जे.एम. ककन्ि (J.M. Keynes) 4. आधथथक विज्ञानको प्रकृत तथा महत्ि
Codes
A. a-3, b-1, c-2, d-4
B. a-1, b-2, c-3, d-4
C. a-2, b-3, c-4, d-1
D. a-3, b-1, c-4, d-2

14.तिका मध्ये कुन भनाई िही हो?

A. तुिनात्मक िुक्ष्म ष्ट्स्त्थरतामा एउटा िन्तुिनबाट अको िन्ति
ु नमा जाँदाको
चरहरुको व्यिहारका बारे मा अध्ययन गररन्छ ।
B. िूक्ष्म गर्तशीितामा कुनै दई
ु ष्ट्स्त्थर िन्तुिनबीच तुिना गररन्छ तर िमयिँगै
त्यिका आउने पररितथनको व्याख्या गररँदैन ।
C. िूक्ष्म ष्ट्स्त्थरतामा कुनै एक िमय विन्दम
ु ा प्राप्त िन्तुिनको अध्ययन गररन्छ ।
D. A C दि
ु ै
15.Per capita income is concerned with... (प्रर्त व्यष्ट्क्त आय...िँग िम्बष्ट्न्धत हुन्छ
।)
A. Microeconomics (िक्ष्
ु म अथथशास्त्र)
B. Macroeconomics (बह
ृ त ् अथथशास्त्र)
C. Price Theory (मूल्य लिद्धान्त)
D. Consumer Theory (उपभोक्ता लिद्धान्त)

Theory of Demand and Supply

16.Demand in economics implies…(अथथशास्त्रमा माग भन्नािे...िाई बझु िन्छ ।)
A. Willingness to pay.
B. Ability to pay.

Note By Nirajan Raut Sir | Miras Academy

 C. Both A and B
D. Either A or B
17.The law of demand refers to... (मागको र्नयमिे ....िाई बि
ु ाउदछ ।)
A. Price-supply relationship
B. Price-cost relationship
C. Price-demand relationship
D. Price-income relationship
18.Generally speaking, when a good's price per unit drops, its...... (िामान्यतया :
जब िस्त्तक
ु ो प्रर्त एकाइ मूल्यमा कमी आँउछ, त्यिको...)
A. Quantity demanded increases.
B. Quantity demanded decreases.
C. Quantity demanded remains constant.
D. None of these happens.
19.For any commodity, the market demand is determined by... (कुनै पर्न िस्त्तक
ु ो
बजार माग ..... को फिन हो ।)
A. price per unit of the good
B. income of consumers
C. tastes of consumers
D. all of the above
20.The demand curve for a commodity is generally drawn on the assumption
that...( कुनै िस्त्तक
ु ो मागरे खा ... मान्यताका आधारमा झखधचएको हुन्छ ।)
A. The commodity has no substitutes.
B. Tastes, income and all other price remain constant.
C. The average household consists of two persons.
D. Purchase of the commodity is made in a free market.
21.When the law of demand operates, the demand curve... ( मागको र्नयम िागु
हुदा माग रे खा...)
A. slopes downward from left to right.
B. slopes upward from left to right.
C. is parallel to the Y-axis.
D. is parallel to the horizontal axis.
22.A schedule which is prepared on the basis of various units demanded by a
consumer at various price in a fixed period of time is..... (र्नष्ट्चचत िमयमा

Note By Nirajan Raut Sir | Miras Academy

 माग कुनै एउटा उपभोक्तािे गरे को विलभन्न एकाईहरुिायथ िमेटेर तयार पररएको
अनुिूचीिाई ....)
A. Market demand
B. Individual demand schedule.
C. Both a and b
D. Either a or b
23.Change in price while keeping another constant is ........ (उपभा अन्य कुराहरु
इथाित रही मल्
ू यमा पररितथन हुँदा .... हुन्छ)
A. Contraction of demand
B. Expansion of demand
C. Movements along a fixed demand
D. All of them
24.Two goods that have to be consumed simultaneously are....(िस्त्तुहरूिाई ...
िस्त्तु भर्नन्छ ।)
A. Identical
B. Complementary
C. Substitutes
D. None of the above
25.When a person's income declines but all other factors stay the same, there is a
demand for inferior goods ... (अन्य कुराहरू यथाित ् रहेको अिस्त्थामा
उपभोक्ताको आय घटे मा र्नकस्त्टु िस्त्तुहरूको माग .....)
A. Increases
B. Decreases
C. Remains unchanged
D. We cannot say without additional information
26.When two goods are complements, a rise in the price of one commodity will
bring...(पररपरु क िस्त्तह
ु रूमा एउटा िस्त्तक
ु ो मल्
ू य िद्
ृ धध हुँदा...)
A. An upward shift in demand for the other commodities m
B. A rise in the price of the other commodity
C. A downward shift in demand for the other commodity
D. No shift in demand for the other commodity
27.A decrease in the price of Giffen goods often tends to.... (धगफेन िस्त्तक
ु ो
िन्दभथमा मूल्य घट्दा...)

Note By Nirajan Raut Sir | Miras Academy

 A. Make the demand remain constant
B. Reduce the demand
C. Increase the demand
D. Change demand in an abnormal way
28.The change in quantity demanded as a result of the... is known as cross
demand....(छड्के मागिे ... पररितथनबाट कुनै िस्त्तुको मागमा हुने पररितथनिाई
दे खाउँ दछ ।)
A. Change in the utility of another commodity
B. Change in the price of another commodity
C. Change in the nature of another commodity
D. Change in the size of another commodity

29.Who analyzed the positive slope of the demand curve? (माग रे खाको धनात्मक
िक
ु ाबको विचिेषण कििे गरे ?)
A. Sir Robert Giffen
B. R.G. Lipsey
C. P.A. Samuelson
D. A. Marshall
30.The notion of demand elasticity was initially presented by... (a SURVIGIÉ
ििथप्रथम .... िे अगाडड िारे का धथए ।)
A. Edwin Cournot
B. Alfred Marshall
C. Paul Samuelson
D. Fredric Bonham
31.The negative income elasticity for...... goods (..... िस्त्तुमा आम्दानीको ऋणात्मक
िोच हुन्छ)
A. Giffen goods
B. Inferior goods
C. Substitutes goods
D. Normal goods
32.The income elasticity id greater than unity for ........ goods (आय िोच एकाई
भन्दा बढी ...... िस्त्तुमा हुन्छ।)
A. Normal
B. Inferior

Note By Nirajan Raut Sir | Miras Academy

 C. Superior
D. Giffen
33.Which of the following formulas is used to determine the elasticity of
demand? (िोच नाप्नका िाधग तिका मध्ये कुन िर
ू को प्रयोग गररन्छ ?)
percentage change in demand
A.
original demand
Proportionate change in price
B.
proportionate change in quantity demanded
Change in demand Original demand
C. ×
Change in price Original Price
Change in demand
D.
Change in price
34.When the demand curve is a rectangular hyperbola, it represents....
(मागरे खाको आकार rectangular hyperbola भएमा ... को प्रर्तर्नधधत्ि गदथ छ ।)
A. Unitary elastic demand
B. Perfectly elastic demand
C. Perfectly inelastic demand
D. Relatively elastic demand
35.The elasticity of demand at the mid point of a straight line demand curve is.....(
कुनै िीधा माग रे खाको मध्यविन्दम ु ा मल्
ू य िोच... हुन्छ ।)
A. 0
B. 1
C. 1.5
D. 2
36.Cross elasticity of complementary goods is......(पररपुरक िस्त्तुको छड्के िोच ......
हुन्छ ।)
A. Negative
B. Zero
C. Positive
D. Infinite
37.Elasticity of demand is equal to unity while marginal revenue .... ( मागको मूल्य
िोच एकाइ बरािर हुन्छ जर्तखेर लिमान्त आय ... हुन्छ ।)
A. Positive
B. Zero
C. Negative
D. Indeterminate

Note By Nirajan Raut Sir | Miras Academy

38.Match the following (जोडा लमिाउनुहोि)
a. Responsiveness of demand to change in 1. Income elasticity of demand
price
b. Responsiveness of demand to change in 2. price elasticity of demand
advertisement outlay
c. Responsiveness of demand to change in 3. cross elasticity of demand
income
d. Responsiveness of demand to change in 4. Advertisement elasticity of demand
price of other goods
Codes
A. a-3, b-1, c-4, d-2
B. a-2, b-4, c-1, d-3
C. a-2, b-3, c-4, d-1
D. a-3, b-1, c-2, d-4
39.A monopolist charging high price operates on... (बढी मल्
ू यमा लिने एकाधधकार
बबक्रेता .... िञ्चािन हुन्छ ।)
A. The elastic part of a demand curve
B. The inelastic part of a demand curve
C. The constant elastic part of a demand curve
D. Ignores elasticity of demand altogether
40.For the income elasticity of demand is greater than unity....(िस्त्तुमा मागको
आयिोच एकाइ भन्दा बढी हुन्छ ।)
A. necessity goods
B. luxury goods
C. inferior goods
D. non-related goods
41.The income elasticity of demand for an inferior good is... (र्नकृस्त्ट बस्त्तुका
िाधग मागको आय िोच... हुन्छ ।)
A. Positive
B. Unitary
C. Negative
D. Infinity

Note By Nirajan Raut Sir | Miras Academy

42.A country can devaluate its currency only when its exports face.....(कुनै दे शिे
त्यर्तखेर मार मुद्राको अिमूल्यन गनथ िक्दछ जर्तखेर त्यिको र्नयाथत...)
A. Inelastic in foreign markets,
B. Elastic in foreign markets
C. Unit elastic in foreign markets
D. None of these
43.When cross elasticity is zero, it indicates that the two goods are.... (छड्के िोच
शन्
ु य भएको बेिा िस्त्तह
ु रू ........ हुछन )
A. Close substitutes
B. Good complements
C. Completely unrelated
D. None of these
44.Other things remaining the same, an increase in supply can be caused by.....
(अन्य कुरा यथाित रहेमा ... िे आपूर्तथमा िद्ृ धध ल्याउन िक्दछ ।)
A. A rise in the price of the commodity
B. An improvement in the techniques of production
C. A rise in the income of the consumer
D. An increase in the income of the seller

45.Assertion: Other things remaining the same, 'Law of Demand states that
people will buy more at the time of lower prices and buy less at the time of
higher prices.'(भनाई : मागको र्नयमिे बताउँ छ कक " अन्य कुराहरू यथाित ् रहे मा
मार्निहरू कम मूल्य भएको बेिा बढी र बढी मूल्य भएको बेिा कम िस्त्तुहरू खरीद
गदथ छन ्")
Reason: Relation between price of goods and quantity of demand remains
opposite. िस्त्तुको मूल्य र मागको मारा बीच विपरीत िम्बन्ध रहे को हुन्छ ।
(कारण : िस्त्तक
ु ो मूल्य र मागको मारा बीच विपरीत िम्बन्ध रहेको हुन्छ ।)
Which is correct is relation to the above assertion and reason? (माधथ टदइएको
भनाई र कारणका िम्बन्धमा िही कनु हो?)
A. Assertion is correct, the reason is false.
B. Assertion is false, the reason is correct.
C. Both the Assertion and Reason are correct.
D. Both assertion and reason are false.

Note By Nirajan Raut Sir | Miras Academy

46.Which of the following factors determines the elasticity of supply? (पर्ू तथको
िोचनिाई र्नम्नलिझखतमध्ये कुन तत्ििे प्रभाि पादथछ? )
A. Change in the marginal cost of production
B. Time period
C. Behaviors of the producers
D. All of the above

Theory of Consumer Behaviors

47.Utility may be defined as ... (उपयोगीतािाई...का रुपमा पररभावषत गनथ िककन्छ
।)
A. The power of a commodity to satisfy wants
B. The usefulness of a commodity.
C. The demand for a commodity.
D. The desire for a commodity.
48.The concept of ordinal utility is developed by....economists (क्रमबद्ध
उपयोधगता विचिेषण ........ अथथशास्त्रीबाट विकाि भएको हो)
A. Modern
B. New Classical
C. Neo Classical
D. Keynesian
49.The concept of cardinal utility is developed by (िंख्यात्मक उपयोधगता विचिेषण
...... विकाि भएको हो)
A. Adam Smith
B. Marshall
C. Edgeworth
D. Robbins
50.Which of the following is ordinal economists? (तिका मध्ये कुन आथथशास्त्रीिे
क्रमबद्ध उपयोधगता धारण व्यक्त गदथछन ्)
A. Pareto
B. Slutsky
C. J.R. Hicks

Note By Nirajan Raut Sir | Miras Academy

 D. All of above
51.Additional utility with additional units of consumption is ........ (थप एक एकाई
िस्त्तु उपभोग गदाथ प्राप्त गने थप उपयोधगतािाई .... भर्नन्छ ।)
A. Total Utility
B. Average Utility
C. Marginal Utility
D. All of above.
52.The units of utility under cardinal utility measures is.....(िंख्यात्मक उपयोधगता
अन्तगथत उपयोधगताको एकाएिाई .... भर्नन्छ ।)
A. Meters
B. Grams
C. Utils
D. watts
53.After reaching the saturation point, consumption of additional units of the
commodity cause.... ... (अधधकतम ् िन्तष्ट्ु रटको स्त्तरमा पुधगिकेपर्छ गररने
उपभोगिे ... गराउँ दछ ।)
A. Total utility to fall and marginal utility to increase
B. Total utility and marginal utility both to increase
C. Total utility to fall and marginal utility to become negative
D. Total utility to become negative and marginal utility to fall
54.Which of the following assumptions does not form the basis of the law of
declining marginal utility? (लिमान्त उपयोगीताको ह्राि लिद्धान्त तिका मध्ये
कुन मान्यतामा आधाररत छै न?)
A. Utility can be measured in numbers.
B. Consumers are rational.
C. Marginal utility of money remains constant.
D. Marginal rate of substitution diminishes.
55.Ordinal utility analysis is also called ....... (क्रमबद्ध उपयोगीता विचिेरणिाई ...
पर्न भर्नन्छ ।)
A. Indifference curve analysis.
B. Hicksian analysis
C. Marshallian Analysis
D. All of the above.

Note By Nirajan Raut Sir | Miras Academy

56.The total utility is maximum when... (कुि उपयोगीता अधधकतम हुँदा हुन्छ)
A. MU is zero
B. AU is the highest
C. MU is the highest
D. MU is equal to AU
57.The demand curve for consumer can be obtained from.... (उपभोक्ताको
मागरे खा... बाट प्राप्त गनथ िककन्छ ।)
A. Income-consumption curve
B. Engel's curve
C. Price-consumption curve
D. All of above
58.Which of these is referred to as the Gossen's First Law? (गोिेनको पटहिो र्नयम
भन्नािे कुन िाई बुिाउँ छ ।)
A. Law of substitution
B. The Law of equi-marginal utility
C. The Law of diminishing marginal utility
D. The Law of indifference
59.What is the most closest related thing to Paul A. Samuelson? (टदइएको मध्ये
कुन अिधारणा पाउि ए स्त्यामयु ििन िँग िम्बष्ट्न्धत छ?)
A. Indifference curve analysis
B. Marginal utility analysis
C. Revealed preference theory
D. Liquidity preference theory
60.The scientific use of indifference curve analysis was introduced by.... (तटस्त्थ
बक्ररे खाको अिधारणािाई िैज्ञार्नक रुपमा .... िेप्रस्त्तत
ु गरे का धथए ।)
A. Irving Fisher in 1982
B. F.Y. Edgeworth in 1881
C. Slutsky in 1915
D. Alfred Marshall in 1921
61.The curve in Edgeworth's box diagram that depicts the equilibrium of two
consumers is referred to as.... (एजिथथ बक्ि धचरमा, दइ
ु ओटा उपभोक्ताहरूको
िन्तुिन विन्द,ु जोड़ने बक्रिाई .... भर्नन्छ ।)
A. Income-consumption curve

Note By Nirajan Raut Sir | Miras Academy

 B. Ridge lines
C. Expansion path
D. Contract curve
62.Which of the following is the condition of consumer's equilibrium? (तिका
मध्ये उपभोक्ताको िन्तुिनको िाधग कुन शतं आिचयक पदथछ।)
A. IC is tangent to the budget line.
B. IC is strictly convex to the origin.
C. Either 'a' or 'b'
D. Both 'a' and 'b'
63.Match the following (जोडा लमिाउनुहोि)
a. Indifference map 1. Various combinations of two commodities that
a consumer can purchase
b. Indifference curve 2. Various combinations of two commodities that
give consumer equal satisfaction
c. Budget line 3. A set of indifference curves.
d. Consumer's equilibrium 4. Point of tangency of a budget line and an IC
Codes
A. a-3, b-2, c-1, d-4
B. a-1, b-2, c-3, d-4
C. a-2, b-3, c-4, d-1
D. a-3, b-1, c-2, d-4
64.In an indifference map, upper indifference curve shows...(उपभोक्ताको तटस्त्थ
बक्र नक्िामा माधथल्िो बक्र रे खािे ... दे खाउँ दछ ।)
A. The lower level of satisfaction
B. The equal level of satisfaction
C. The higher level of satisfaction
D. None of the above
65.Match the following (जोडा लमिाउनुहोि)
a. Cardinal Approach 1. Marginal Utility
b. Ordinal Approach 2. Alfred Marshall
c. Decomposition of Price Effect 3. J.R. Hicks
d. Consumer's Surplus 4. Indifference Curve

Note By Nirajan Raut Sir | Miras Academy

Codes
A. a-3, b-1, c-4, d-2
B. a-1, b-4, c-3, d-2
C. a-2, b-3, c-4, d-1
D. a-3, b-1, c-2, d-4
66.Regarding inferior and Giffen goods, which of the following is true? (तिका
मध्ये र्नकृस्त्ट र धगफेन िस्त्तुका िन्दभथमा कुन भनाइ िही हुन्छ?)
A. Income effect is negative in both types of goods.
B. Price effect is positive in Giffen good and negative in inferior good.
C. Demand curve is upward sloping in Giffen good and downward sloping in
inferior good.
D. All of the above.
67.consumer's demand curve under IC anlaysis is derived by from... (तटस्त्थ बक्र
रे खाको विचिेषणमा उपभोक्ताको माग रे खा.... बाट र्नकालिन्छ ।)
A. IC only
B. Budget line only
C. Income Consumption curve
D. Price consumption curve
68.Regarding the indifference curve, which of the following statements is true?
(तटस्त्थ रे खाको िम्बन्धमा तिको कुन भनाई ठीक छ ?)
A. The slope of indifference curve is downward to the left.
B. High indifference curve does not represent higher level of satisfaction.
C. Indifference curves intersect each other.
D. Indifference curves are convex to the origin.
69.Which of the following statements about the shape of indifference curves is
false? (तटस्त्थ रे खाको िम्बन्धमा ति िेझखएका मान्यता मध्ये कुन टठक छै न?)
A. Indifference curves slope downwards
B. Indifference curves are concave to the origin
C. Indifference curves do not intersect each other
D. Indifference curves slope from right to left

70.Which of the following statements is/are correct? (ति टदइएका भनाइहरू मध्ये
कुन भनाइ ठीक छ?)

Note By Nirajan Raut Sir | Miras Academy

 1. The indifference curve is convex to the origin.
2. Two indifference curves do not intersect each other.
3. Higher and lower indifference curves show the same level of satisfaction
A. A and B are correct but C is incorrect
B. A and C are correct but B is incorrect
C. All A, B and C are correct
D. All A, B and C are incorrect

Theory of Production
71."Production" can be characterized as an action of ... (उत्पादनिे.... िाई िुिाउछ
?)
A. Creating utility
C. Destroying utility
B. Earning profit
D. Providing the services
72.Short run production function is.....(अल्पकालिन उत्पादन भन्नािे.....बझु िन्छ ।)
A. All inputs are variable.
C. At most one input is variable
B. At most one input are constant
D. At least one input is constant.
73.Long run production function is ..... (टदघथकालिन उत्पादन भन्नािे.....बुझिन्छ ।)
A. All inputs are constant.
B. One input is constant one input is variable
C. All inputs are variable
D. All of the above.
74.Law of variable proportion ia also related with.... (पररितथनलशि अनुपातको
र्नयम .... िँग िम्बष्ट्न्धत छ।)
A. Long run production function
B. Short run production function
C. Both short run production function and long run production function.
D. None of them

Note By Nirajan Raut Sir | Miras Academy

75.Law of variable proportion states that when one input is variable keeping on
the constant then, पररितथनशीि मार्नदा ...) (पररितथनलशि अनुपातको र्नयम
अन्तगथत एउटा िाधन ष्ट्स्त्थत राखी अकोिाई
A. Output Increases at constant rate first, then output is increasing at
decreasing and finally increasing.
B. Output initially increases at an increasing rate then after increases at a
decreasing rate and finally declines.
C. Output is increasing at decreasing rate first, then increasing at increasing
rate and finally decline.
D. None of the above.
76.Which one of the following is true? (ििका मध्ये कुन भनाई िटह छ?)
A. Total product is at a minimum when marginal product has fallen to zero.
B. Total product is at a maximum when marginal product is falling.
C. Total product is at the maximum when marginal product is zero.
D. Total product increases when marginal product is zero.
77.The assumption of law of variable proportion are (पररितथनलशि अनप
ु ातको
र्नयम मान्यताहरु .... हुन ।)
A. Labor is a homogenous factor of production.
B. One input is keeping other constants with given technology.
C. Time period of short run
D. All of the above.
78.In second state of law of variable proportion...(पररितथनलशि अनुपातको
र्नयमको दोशो चरणमा ....)
A. Output increases at an increasing rate
B. Output increases at a decreasing rate
C. Output declines
D. All of the above.
79.The expansion path of the theory of production is similar to...in consumption
theory. (उत्पादन लिद्धान्तको उत्पादन विस्त्तार रे खा उपभोक्ता लिदान्तको ... िँग
लमल्दो जल्
ु दो हुन्छ ।)
A. Price consumption curve
B. Engel curve
C. Income consumption line
D. Budget constraint line

Note By Nirajan Raut Sir | Miras Academy

80.In stage I of law of variable proportion, which of the following statement is
true? ( पररितथनलशि अनुपातको र्नयमको पटहिो चरणमा टदइएको मध्ये कुन ठीक
छ ?)
A. Total product increases at an increasing rate.
B. Average product of labor increases.
C. Marginal product of labor is higher than the average product of labor
D. All of the above.
81.A rational producer will never choose to produce in stage III in the law of
variable proportion because (वििेकलशि उत्पादकिे पररितथनशीि अनुपात
र्नयमको तेस्रो चरणमा कटहिे पर्न उत्पादन गदै न ककन कक ...)
A. Marginal product of variable factor is negative
B. Law of negative returns applies
C. Total product declines
D. All of them
82.The elasticity of substitution between two inputs in the Cobb-Douglas
production function is ..... (Cobb-Douglas उत्पादन फिनमा प्रर्तस्त्थापन िोच...)
A. Decrease continuously
B. Increase continuously
C. Remains constant
D. Unitary
83.Match the following (जोडा लमिाउनुहोि)
a. Stage I of production 1. Average product and marginal product are
falling
b. Stage II of production 2. Marginal product is negative
c. Stage III of production 3. Average product is rising
d. Stage of production 4. Stage II
Codes :
A. a-3, b-1, c-4, d-2
B. a-2, b-4, c-3, d-1
C. a-2, b-3, c-4, d-1
D. a-3, b-1, c-2, d-4

84.Isoquant refers to... (िम-उत्पादन रे खािे ... बि

ु ाउँ दछ ।)
A. Another name of indifference curve

Note By Nirajan Raut Sir | Miras Academy

 B. Curve that shows equal level of output
C. Curve that shows equal level of input
D. An equal cost curve of a producer
85.The production function Q=100K0.8 L0.5 shows... (Q = 100k0BL 0.5 िे...
दे खाउँ दछ ।)
A. Increasing returns to scale
C. Constant returns to scale
B. Decreasing returns to scale
D. None of these
86.What is the value of MP for the production function Q= 10L+5L2 -L3, when
L= 3.(Q = 10L +5L2 - L3 मा L को मान 3 हुँदा श्रमीकको लिमान्त उपादकत्ि कर्त
हुन्छ ।)
A. 48 units B. 13 units
C. 16 units D. 32 units
87.Iso-quant curve is not called... (िम-उत्पादन रे खािाई... पर्न भर्नन्छ ।)
A. Equal product curve B. Production indifference curve
C. Iso-product curve D. All of the above
88.Iso-cost line shows... (िम-िागत रे खािे दे खाउँ दछ ।)
A. Various combinations of two inputs which a producer can purchase with a
given - outlay
B. Various combinations of two factor of production which yield the same
level of - - output with a
given outlay.
C. Various combinations of two goods which can obtain with a given outlay.
D. None of them
89.The slope of isoquant is.... (िम-उत्पादन रे खाको भु काि... बराबर हुन्छ।)
A. MP/MP
B. -dK/dL
C. MRTSLX
D. All of them

Cost and Revenue Curves and Product Pricing

90.All money costs can be regarded as... (िबै मौटद्रक िागतिाई ... भर्नन्छ ।)

Note By Nirajan Raut Sir | Miras Academy

 A. Social costs B. Opportunity costs
C. Explicit costs D. Real costs

91.The cost assigned to factors of productions that the firm neither hires nor
purchases is called ... (फमथिे खररद नगने उत्पादन िाधनहरूिाई र्तररने िागििाई
... भर्नन्छ ।)
A. Social cost B. Opportunity costs
C. Economic cost D. Expected cost
92.Which of the following is an example of fixed cost? ( तिका मध्ये कुन ष्ट्स्त्थर
िागत को उदाहरण हो ?)
A. Labour costs B. Payments for raw materials
C. Transportation charges D. Depreciation of land

93.The vertical distance between TVC and TC is equal to... (कुि िागत तथा कुि
पररितथनशीि िागतबीचको फरकिाई... भर्नन्छ।)
A. MC
B. AVC
C. TFC
D. None of these
94.The MC curve cuts the AVC and ATC curves... (MC बक्रिे औित पररितथनशीि
िागत र औित िागत बक्रिाई... काट्दछ ।)
A. At the falling parts of each
B. At different points.
C. At their respective minimum points
D. At the rising parts of each
95.The economies and diseconomies of large scale production is reflected
in…(ठुिो उत्पादनस्त्तरबाट प्राप्त हुने लमतव्ययीता तथा बेलमतव्ययीताहरू... मा
प्रर्तबबष्ट्म्बत हुन्छन ् ।)
A. The short run MC curve B. The short run AC curve
C. The normal long run AC curve D. The normal long run TR curve
96.Economic cost is sum of ...... (आधथथक िागत.... को योगफि हो ।)
A. Explicit cost and opportunity cost B. Explicit cost and accounting cost
C. Explicit cost and implicit cost D. Explicit cost and social cost

Note By Nirajan Raut Sir | Miras Academy

97.Which of the following is true for the calculation of marginal cost? ( लिमान्त
िागतको गणनाका िाधग तिको मध्ये कुन िही हो ?)
1. MC-TC-TCa.1
2. MC-TVC-TVC1
3. MC = ATC/AQ
A. 1 and 3 only B. 1 and 2 only
C. 2 and 3 only D. All of them
98.Long run average cost is U shaped due to (टदघथकालिन औित िागत 'U'
आकारको हुनका कारण .... हो ।)
A. Law of variable proportion B. Law of diminishing returns
C. Laws of returns to scale D. All of the above
99.The shape of modern LAC is (आधुर्नक टदघथकालिन औित िागत िक्रको आकार
.... हुन्छ।)
A. 'U' shaped B. 'S'shaped
C. Rectangular hyperbola D. 'L' Shaped
100. In a given function TC= 200+5Q-0.04Q2+0.001Q3, the value of TFC
is........
A. 20 B. 200
C. 100 D. 4.7
101. Which of the following is an implicit cost of production? ( तिका मध्ये कुन
अप्रत्यक्ष िागत हो ?)
A. Wages of the labor. B. Charges for electricity.
C. Interest on owned money capital. D. Payment for raw materials.
102. Which of the following curve represent the firm's demand curve? (तिका
मध्ये कििे फमथको माग रे खा दे खाउँ दछ ?
A. Total revenue curve.
B. Marginal revenue curve.
C. Average revenue curve.
D. None of these.
103. Which of the following statement is true in the context of revenue when
price is constant? (मल्
ू यस्त्तर ष्ट्स्त्थर भएको बेिा प्राप्त हुने किु आयका िम्बन्धमा
तिका मध्ये कुन भनाइ िही हो?)

Note By Nirajan Raut Sir | Miras Academy

 A. MR is constant B. AR is constant
C. AR is equal to MR D. TR increases at a constant rate

2. Facets of the Nepalese Economy

Introduction of Nepalese Economy

The Nepalese economy is a developing economy located between the two giant
economies of India and China. It relies heavily on agriculture and remittances.
About 50.4 % of the population depends on agriculture. The agricultural sector
contributed about 25% of the country's total GDP. Every day, around 2,000 young
people go abroad in search of job opportunities. Money sent home by those
working abroad is called remittance. Remittances also contributed around 25%
of the country's total GDP. After Nepal adopted a liberal economic policy, imports
increased significantly, but exports did not increase as expected due to a lack of
industrialization and modernization of agriculture. Thus, the Nepalese economy
is facing the problem of a trade deficit.

Main Features of the Nepalese Economy

• Landlocked economy,
• Agriculture based economy,
• Planned development-based economy,
• Mixed economy,
• Dependence on foreign aid,
• Large contribution of remittance to GDP,
• Welfare state.

Problems/ Challenges of Economic Development in Nepal

• A vicious circle of poverty

• Less Investment
• Low productivity of labor and capital
• Lack of investment-friendly environment

Note By Nirajan Raut Sir | Miras Academy

 • Administrative deficiencies
• Slow Industrialization
• Widespread Corruption and nepotism
• Lack of good governance
• Political instability

Facets of the Nepalese Economy

Facets of the Nepalese economy refer to the various aspects of Nepalese

economy, which includes agriculture, industry, trade, tourism foreign
employment, remittance and so on.

1. Agriculture

Agriculture refers to the occupation related to food production, animal husbandry,

horticulture, floriculture, and so on.

In other words, agriculture can be defined as the process of tilling (खेती) land for
food and fruit production as well as rearing and feeding animals for skin, milk
meat etc.

Nepal is an agricultural country because around 50.4 % (Survey as on 2021 AD)

of people depend on agriculture for livelihood.

The agriculture sector has the highest contribution to the total GDP of the country,
so it is known as the backbone of the Nepalese economy.

Features

• Subsistence farming (र्निाथह खेती)

• Dominance of food crops Traditional farming system
• Unequal distribution of land
• Fragmentation of land (जलमनको खण्डीकरण)
• Dependence on monsoon Low productivity

Importances

• The main source of food

• The main source of livelihood
• Creation of employment opportunities

Note By Nirajan Raut Sir | Miras Academy

 • Industrial development
• Source of government revenue
• Basis of international trade Backbone of economy

Problems

• Traditional farming system Low productivity

• No agricultural research.
• Lack of irrigation facilities
• No easy availability of agricultural credit
• Lack of capital
• Technological backwardness
• Inadequate physical infrastructures
• Uncontrollable and imbalanced use of pesticides and chemicals

Agriculture in Fifteenth Plan (2076/77-2080/81)

The economic growth rate of the agriculture sector is 4.8 percent in FY 2075/76
(2018/19 A.D). It is targeted to increase by 5.8 percent in FY 2080/81 and 5.9
percent in FY 2100/01.

The agriculture sector contributed 27 percent in the total GDP of the country in
FY 2075/76. It is expected that the contribution of the agriculture sector to GDP
will decrease to 22.3 percent in FY 2080/81 and 9 percent in FY 2100/01.

60.4 % of people depend on agriculture for livelihood.

Out of a total of 26 lakh 41-thousand-hectare agricultural land, 22 lakh 65-

thousand-hectare land is irrigable.

Out of total irrigable land, only 33% of land gets year-round irrigation facility in
FY 2075/76. It is targeted to increase to 50% by FY 2080/81 and 85% by FY
2100/01.

Visions, Goals, Objectives, and Strategies

Vision: A sustainable, competitive, and prosperous agricultural economy with

food and nutrition security and food sovereignty.

Goal: To achieve inclusive and sustainable economic growth through the

transformation of the agriculture sector into a competitive, climate-resilient, self-
reliant, and export-oriented industry.

Note By Nirajan Raut Sir | Miras Academy

Objectives

1. To ensure food and nutrition security by increasing the production and

productivity of the agriculture sector.

2. To increase employment opportunities and income by developing agriculture-

based industries.

3. To achieve trade balance in the agriculture sector by building capacities for

commercialization and competitiveness

Strategies:

Creating a conducive environment to promote private investment in the

agriculture sector

To promote export through the marketing of high-value crops and other products
having a comparative advantage.

To integrate education, research, and extension services to increase the

effectiveness and productivity of the agriculture sector.

Economic Survey (2079/80)

Note By Nirajan Raut Sir | Miras Academy

The contribution of the agriculture sector in gross value added (GVA/GDP) is
24.9 percent in fiscal year 2077/78 and it is estimated to remain 24.1 (24) % in
FY 2079/80.

In the last ten years, the contribution of the agriculture sector to GDP/GVA is 27.1
percent. (Increasement rate 2.9%)

Ratio of Various Items in Total Agricultural Production

Food items- 44.3%, Vegetable items- 17.1%, Cash crops- 15.3%, Industrial crops-
13.2%, Fruits items-5.8%, and Other items- 4.3%.

2. Industry

The process of producing goods and services using raw materials, human
resources, capital, and technology is known as industry.

An industry is a group of firms producing goods and services.

Note By Nirajan Raut Sir | Miras Academy

Industrial development plays a crucial role in the economic development of the
country.

Countries such as America, Britain, Japan, etc are developed due to rapid
industrialization.

Economic development of the country is not possible without industrialization.

In Nepal, handicrafts and micro enterprises have been operating since ancient
times, but organized industrial development started during the regime of Rana
Prime Minister Judda Sumsher in 1936 A.D. So, he is known as the father of
industry.

Industrial Enterprises Act, 2076 (2020 A.D) classifies industries into five main
types based on fixed capital assets.

a) Micro-industry

• With the fixed capital not exceeding two million rupees, excluding house
and land.
• The entrepreneur himself or herself is involved in the operation and
management of the industry.
• With a maximum of nine workers including the entrepreneur.
• With annual transactions of less than ten million.
• Less than 20KW capacity using electric or other fuel energy.

b) Cottage industry

• use of traditional skills and technology.

• use of local raw materials, technology, arts, and culture.
• the capacity of electric energy to be consumed by the engine of the machine
is up to 50KW.

c) Small industry

An industry with fixed capital not exceeding one hundred fifty million rupees,
other than a micro-enterprise and cottage industry.

d) Medium industry

An industry with fixed capital exceeding one hundred fifty million rupees, but not
exceeding five hundred million rupees.

Note By Nirajan Raut Sir | Miras Academy

e) Large industries

An industry with fixed capital exceeding five hundred million rupees.

Importance's

• Increase in employment.
• Increase in government revenue.
• Technological development
• Utilization of natural resources
• Reduction of trade deficit
• High living standard
• Reduction of poverty
• Development of other areas

Problems

• Lack of capital
• Inadequate industrial infrastructure
• Lack of raw materials
• Tough competition with foreign products
• Security and environmental concerns
• Political instability

Industry in Fifteenth Plan (2076/77-2080/81)

The economic growth rate of the industrial sector is 12.2 % in FY 2075/76

(2018/19 A.D). It will have increased to 14.6 % by the end of this planning.

The industry sector contributed 15.2 % to the total GDP of the country in FY
2075/76. It is targeted that by FY 2080/81 the contribution of industry to GDP
will have increased to 18.8 %. It will have increased to 30 % by 2100/01.

Among 11 industrial estates established 10 are in operation. This sector

contributes 8.1 percent to national employment.

1. Balaju Industrial Estate

2. Bhaktapur Industrial Estate
3. Birendranagar Industrial Estate
4. Butwal Industrial Estate

Note By Nirajan Raut Sir | Miras Academy

 5. Dhankuta Industrial Estate (construction work held up due to
technical problem)
6. Dharan Industrial Estate
7. Hetauda Industrial Estate
8. Nepalgunj Industrial Estate
9. Patan Industrial Estate
10. Pokhara Industrial Estate
11. Gajendra Narayan Singh Industrial Estate (Rajbiraj)
Vision: Sustainable, employment-oriented, and high-return industrial
development for economic prosperity.

Goal: To increase the contribution of the industrial sector to the national economy
through the development and expansion of the industrial sector.

Objectives

• To increase the contribution of the industrial sector in GDP by increasing

industrial production.
• To promote export and manage imports by enhancing the production and
competitiveness of industries.
• To create additional opportunities for employment by increasing domestic
and foreign investment in the industrial sector by creating an investment-
friendly environment.

Strategies

• To introduce policy, legal, and institutional reforms for the development of

the industrial sector.
• To develop and expand the industrial sector based on its interrelationship
with other productive sectors.
• To adopt measures for capacity building, financial access, and promotion
for the development and expansion of industries.

Economic Survey (2079/80)

आधथथक िषथ २०७९/८० मा औद्योधगक क्षेर (उत्पादनमि

ू क उद्योग) को उत्पादन २.०
प्रर्तशतिे ऋणात्मक रहने अनम
ु ान छ। चािु आधथथक िषथको कुि गाहथस्त्थ्य उत्पादनमा
यि क्षेरको योगदान ५.३ प्रर्तशत रहने अनुमान छ । पर्छल्िो १० आधथथक िषथमा

Note By Nirajan Raut Sir | Miras Academy

औद्योधगक उत्पादनको िद्
ृ धधदर िावषथक औषत ३.३ प्रर्तशत र कुि गाहथस्त्थ्य योगदान
िावषथक औित ५.६ प्रर्तशत रहे को छ ।

मुिुकको उद्योग, िाझणज्य र आपर्ू तथ क्षेरिाई ििि र िुदृढ तुल्याउँ दै औद्योधगक

विकािका िाधग एकि विन्द ु िेिाको शुरूिात भएको छ ।

In FY 2077-78 the contribution of industry to GDP/ Gross Value Added is 13.7

% and it is 14.29 % in FY 2078-79 (Till Falgun).

In FY 2077-78 the contribution of productive industry to GDP/ Gross Value

Added is 5.45 % and it is estimated to remain 5.65 percent in FY 2079-80.

In the last five years, the yearly average contribution of productive industries to
GDP is 5.53 %.

The gross value added of productive industries is estimated to remain at 6.14%

in FY 2078-79.

Till Falgun 2078-79, out of a total of 8,656 industries, the share of big industries
is 14.7%, medium industries are 22.9% and small industries are 62.4%.

3. Tourism

Human beings are inquisitive (ष्ट्जज्ञािु) by nature. They like to travel and visit
new and new places. So, the movement of people from their usual residences to
new places for leisure(फुिथद), pleasure, and business is known as tourism.

Tourism is the act and process of spending time away from home in pursuit of
recreation, relaxation, pleasure, business, and so on.

WTO states, "Travelling to or staying in places outside their usual environment

for not more than one consecutive year for leisure, business or other purpose is
known as tourism." All the business activities that provide facilities and services
to tourists are known as the tourism industry. Those persons who travel to new
places from their usual residence are known as tourists.

Industrial Enterprises Act 2020 of Nepal defined the "tourism industry as the
industry related to tourism services."

Mainly there are two types of tourism.

Note By Nirajan Raut Sir | Miras Academy

a) Internal Tourism

b) External Tourism

Based on the purpose of the visit tourism can be categorized as adventure tourism
cultural and religious tourism, mountaineering and trekking tourism, wildlife
tourism, etc.

Opportunities/ Prospects of Tourism in Nepal

• Natural beauty
• Religious and cultural diversity
• Favorable climate
• Wildlife
• Ancient are and culture.
• Hospitality of people
• Cheap market
• Progress on the development of tourism infrastructure
• Development of new tourist destinations

Importance of Tourism

• Source of foreign currency

• Creation of employment opportunities
• Art and cultural exchange
• Infrastructure development
• Increase in the living standard of people.
• Increase in government revenue.
• Development of the rural area
• Reduction of poverty

Problems and Challenges of Tourism

Problems

• Lack of quality hotels

• No peace and security
• Lack of transportation and communication facilities
• Lack of adequate public awareness
• Lack of means of recreation (मनोरञ्जन).

Note By Nirajan Raut Sir | Miras Academy

 • Political instability

Challenges

• To establish Nepal as a very attractive tourist destination in the world

tourism market
• Improve air safety, security, and reliability and expand air services,
• Enhance the quality of tourism services and facilities,
• Identify and diversify new destinations,
• Attract private investment in the development of tourism infrastructure,
• To have adequately skilled human resources in this sector,
• To mitigate (कम गने) the effects of climate change in this sector,
• To increase the arrival of quality tourists,
• To make tourism services smart, tourist-friendly, secure, and reliable.

Tourism in Fifteenth Plan (2076/77-2080/81)

Headings The real situation of FY

Target of FY 2080/81
2075/76
Tourist arrival 11 lakh 97 thousand 35 lakhs

Contribution to GDP 2.7% 10%

Per tourist Per day $48 $100

expenses

The average length of 12.7 day 15 day

stay
Vision: Nepal is an attractive, safe, and captivating tourist destination.

Goal: To put Nepal in the forefront of the global tourism market.

Objectives

• To develop Nepal as an attractive tourism destination by making it safe,

quality-focused, and tourism-friendly.
• To increase the contribution of tourism to the economy by diversifying
tourism destinations and products.
• To make sure that the benefits of tourism are distributed equitably at the
ordinary people's level.

Strategies

Note By Nirajan Raut Sir | Miras Academy

 • To undertake extensive publicity and promotion of Nepali tourism in
neighbouring countries and major tourism markets.
• To promote integrated tourism development by bringing together other
sectors with tourism potential, including education, health, and sports.
• To develop tourism as a driver of the economy. The provincial and local
levels will coordinate with the private sector for the identification,
development, and diversification of tourism destinations.
• To distribute benefits of this sector to the local level by connecting tourism
outputs to the value chain.

Economic Survey (2078/79)

• In 2021 A.D. tourist arrival in Nepal decreased by 34.3% and reaches

1,50,962.
• This is lowest after 1977 A.D.
• In 2021 A.D foreign currency earned from external tourists decreased by
46% and reached to
• 1350.11 billion.
• Total length of stay- 15.5 day
• Per tourist per day expenses- $48
• Five countries with the highest number of tourists in 2021 is as follows:
o India- 42.83%
o USA- 15.13%
o Britain- 5.74%
o China- 4.10%
o Bangladesh- 3.34%
• Majority of tourists that come Nepal visit Lumbini, the birthplace of
Gautam Buddha.
• Tourist arrival in 2021, according to travel objectives is as follows.
o Holiday, recreation and travel- 66.8%
o Mountaineering and trekking- 10.3% Pilgrimage- 7.4%
o Others- 15.5%
• In FY 2077/78 (2020/21 A.D) the contribution of tourism in GDP is 0.2
percent. It remains 0.6 percent by Falgun 2078/79 (mid-March 2021/22).

4. Trade

• Trade is the transaction of goods and services.

Note By Nirajan Raut Sir | Miras Academy

 • The buying and selling of goods and services is known as trade.
• Trade is induced by feelings of benefit.
• Generally, there are two types of trade:
o Internal trade
o External trade: i) Bilateral trade ii) Multilateral trade
• Trade plays a crucial role in the economic development of the country.
• Trade Deficit: Situation in which import is greater than export.

Importance of Trade

• Infrastructure development
• Increase in income.
• Generation of employment opportunities
• Increase in living standard.
• Increasing government revenue
• End of poverty
• Economic development

Problems and Challenges of Trade Problems

• Lack of market
• Trade deficit
• Political instability
• Low industrialization
• Lack of modernization of trade
• Low productivity
• Lack of effective implementation of trade policy
• High cost of trade and transit
• The high share of semi-processed goods
• Lack of trade diversification

Challenges

• To reduce the trade deficit

• To make structural changes in the trade sector
• To increase the quality of goods
• To increase investment in infrastructure related to international and
regional inter- connectivity.

Note By Nirajan Raut Sir | Miras Academy

Trade in Fifteenth Plan (2076/77-2080/81)

The share of wholesale and retail trade in GDP is 14.4 percent in the fiscal year
2018/2019. Export is increasing at a low rate while the import is increasing at a
high rate.

The export-import ratio in trade in goods is 1:14.4, and the trade deficit stands at
38.1 percent of GDP

Vision, Goal, Objectives, and Strategies

Vision: Export promotion, import management, and trade balance for economic
prosperity. Goal: To increase the contribution of the trade in the economy.

Objectives

• To increase the production of food grains and other basic consumer goods
as well the production of export goods and services having comparative
advantages.
• To reduce the cost of trade both in domestic and international trade.
• To enhance the integration of Nepali goods and services in international
value chains.

Strategies

To manage import and promote export by identifying, developing, diversifying,

and increasing the production and productivity of food grains and other consumer
goods and services having comparative advantages and competitiveness.

To reduce the cost of domestic and international trade through the development
and utilization of trade technologies and other infrastructure, the use and
expansion of information technologies, good governance and effective
regulation, trade facilitation, and institutional strengthening.

To protect and promote trade-related intellectual property rights in the

international market.

To strengthen economic diplomacy and build trade capacity through trade-related

bilateral, regional and multilateral mechanisms to integrate Nepali products into
international value chains and expand the market for Nepali products.

Economic Survey (2078/79)

Note By Nirajan Raut Sir | Miras Academy

In FY 2077/78 total goods exports increased by 44.4% and reached to 141.1
billion and total goods imports increased by 28.7% and reached to 1539.8 billion.
Likewise, trade deficit reaches 1398.7 billion.

In FY 2077/78 the ratio of export, import, and trade deficit to GDP is 3.3%,
36.0%, and 32.7 percent respectively.

Till Falgun 2078/79 total trade increased by 42.1% and reached to 1156.48
billion

Till Falgun 2078/79 total goods export increased by 82.9% and total goods
imports increased by 38.6% and reach to 138.73 billion.

5. Foreign employment and Remittance

• Migrating from one country to another country for a job and to earn money
is known as foreign employment.
• The act of going to other countries to work and earn money is known as
foreign employment.
• In other words, it can be defined as working abroad to earn money.
• Labor migration from abroad has rapidly increased particularly after
globalization.
• Money sent to the home country by those working abroad is known as
remittance.
• The informal and temporary migration for foreign employment started
before the early 19th century, when Nepalese traveled to Lahore to join the
army of Sikh ruler Ranajit Singh.
• But labor migration in the true sense started after Anglo Nepal Treaty of
Peace and Friendship of 1816 which recruited 3,000 Nepalese soldiers in
the British Gurkha Regiment.
• The signing of the Peace and Friendship Treaty between Nepal and India
in July 1950 was the turning point in the movement of Nepalese migrant
for employment in India.
• But, after the enactment of Foreign Employment Act, 1985, Nepali labor
started to migrate beyond India for employment.

Advantages

• To solve problem of unemployment

• Remittance income

Note By Nirajan Raut Sir | Miras Academy

 • Skilled and trained manpower
• Increase in living standard.
• Poverty reduction

Disadvantages

• Shortage of manpower in the country

• Brain drain.
• Mismanaged family
• Human cost
• Create dependency.

Labor and Employment in Fifteenth Plan (2076/77-2080/81)

Vision: Availability of dignified and productive employment opportunities to all

citizens.

Goal: To significantly reduce the unemployment rate and under-utilization of

labor by increasing employment in productive sectors.

Objectives:

• To expand productive and dignified employment opportunities across the

country.
• To develop good industrial relations.
• To end all forms of labor exploitation including child labor.
• To make foreign employment safe, dignified, and systematic.

Strategies:

• To guarantee minimum employment by expanding employment programs

right from the local level.
• To create effective coordination among the three levels of government for
the creation of employment opportunities and management of labor,
• To make different stages of foreign employment safe, exploitation-free,
dignified, and high-paying.
• To establish a high-level 'National Employment Authority' with the powers
to generate employment opportunities coordinate with various agencies
and regulate employment- related work.

Economic Survey 2078/79

Note By Nirajan Raut Sir | Miras Academy

 • Till Falgun 2078 total of 56,65,226 labor went for foreign employment.
Out of which 53,48,814 were male and 3,16,412 were female.
• Institutionally 110 and personally 178 countries are open for foreign
employment by the government.
• A total of 878 manpower companies get licenses to send abroad.
• The five major destinations countries till Falgun 2078 are Qatar, Malaysia,
Saudi Arab, UAE and Kuwait.
• In FY 2077/78 the contribution of remittance to GDP is 22.5% and it
remains 20.3% till Falgun 2078/79.

Top five countries with highest number of labor migration till Falgun 2078.

Country Percent
Qatar 22.56
Malaysia 22.22
Saudi Arab 18.52

UAE 11.92
Kuwait 2.77
Others 22.01

3. Macroeconomic Indicators

What Is a Closed Economy?

• A closed economy typically refers to a country that does not trade or engage
in other financial exchanges with any other country.
• That means no imports come into the country and no exports leave it.
• The goal of a closed economy is complete self-sufficiency, providing
domestic consumers with everything they need from within the country's
borders.
• In today's interconnected world, closed economies are more of a theoretical
concept than a reality, although some economies are more closed than
others.
• A closed economy refers to a country that produces all of its goods and
services and doesn't participate in international trade.
• Closed economies are virtually non-existent today, although some
countries come closer than others to having one.

Note By Nirajan Raut Sir | Miras Academy

Types of Close Economy:

Two-Sector Economy

The model described above is the two-sector model, which is the most basic
model containing only two sectors: individuals or households and businesses. In
the two-sector model, it is assumed that households spend all their incomes as
consumer expenditures and purchase the goods and services produced by
businesses. Thus, there are no taxes, savings, or investments that are associated
with other sectors.

Three-Sector Economy

In the three-sector model, the government is added to the two-sector model. In

this model, money flows from households and businesses to the government in
the form of taxes. The government pays back in the form of government
expenditures through subsidies, benefit programs, public services, etc.

Note By Nirajan Raut Sir | Miras Academy

What is an Open Economy?

An open market is an economic system with little to no barriers to free-market

activity. An open market is characterized by the absence of tariffs, taxes, licensing
requirements, subsidies, unionization, and any other regulations or practices that
interfere with free-market activity. Open markets may have competitive barriers
to entry, but never any regulatory barriers to entry.

Types of Open Economy:

Four-Sector Economy

Besides households, firms, and the government, the foreign sector also plays a
crucial role in an economy. Therefore, the circular flow in a four-sector economy
consists of households, firms, government, and the foreign sector. Money flows
in each of these sectors are as follows:

1. Household Sector: The household sector of an economy provides factor

services to the firms, government, and the foreign sector for which it received
factor payments in return. Besides factor payments, the households also receive
transfer payments like old age pensions, scholarships, etc., from the government
and foreign sector. The household sector spends its earned income on Payments
for goods and services purchased from firms, payments for imports, and tax
payments to the government.

2. Firms: The firms receive revenue for the sale of goods and services from the
government, households, and foreign sectors. They also receive subsidies from

Note By Nirajan Raut Sir | Miras Academy

the government to produce goods and services. Besides, the firms make payments
for taxes to the government, factor services to the households, and imports to the
foreign sector.

3. Government: The government receives revenue for the sale of goods and
services, fees, taxes, etc., from the firms, households, and the foreign sector. It
also makes factor payments to households and spends its revenue on transfer
payments and subsidies.

4. Foreign Sector: The foreign sector receives revenue for the export of goods
and services from firms, households, and the government. It also makes payments
to firms and the government for the import of goods and services, and households
for the factor services.

The financial market also plays an important role in a four-sector economy as the
savings made by the households, firms, and the government gets accumulated
here and this money is invested by the financial market in the form of loans to
firms, households, and the government. The inflows of money in the financial
market in a four-sector economy are equal to the outflows of money, which makes
the circular flow of income continuous and complete.

This concept can be better understood with the help of the following diagram:

Note By Nirajan Raut Sir | Miras Academy

Macroeconomic Indicators:

• Macroeconomic indicators can be described as statistics or readings that

reveal the production or output of an economy, government, or sector.
• They are also referred to as fundamental data releases.
• These are of utmost importance to analysts and governments as they help
assess the current and future health of the economy and financial markets.
• The macroeconomic indicators depict the situation of all four pillars (real
sector, public finance, monetary sector, and external sector of the economy)
• The typical macroeconomic indicators are national account figures,
employment rate, inflation, balance of payment, public debt status, capital
market performance, etc.

Key Macroeconomic Indicators

Indicators 2076/77 2077/78R 2078/79P

Nominal Per capita GDP (US $) 1156 1239 1372
Nominal Per capita GNI (US $) 1170 1246 1381
Nominal Per capita GNDI (US$) 1462 1557 1683

Note By Nirajan Raut Sir | Miras Academy

Final consumption expenditure as % of GDP 94.3 92.3 90.7
Gross domestic saving as % of GDP 5.7 7.7 9.3
Gross national saving as % of GDP 32.2 33.3 31.9

Gross fixed capital formation as % of GDP 30.5 29.9 29.4

SNA Classifications (2008) As per Agricultural, Industrial & Service Sector

A Agriculture, forestry, and fishing
B Mining and quarrying
C Manufacturing
D Electricity, gas, steam and air conditioning supply
Water supply; sewerage, waste management and remediation
E activities
F Construction
G Wholesale and retail trade; repair of motor vehicles and motorcycles
H Transportation and storage
I Accommodation and food service activities
J Information and communication
K Financial and insurance activities
L Real estate activities
M Professional, scientific and technical activities
N Administrative and support service activities
O Public administration and defence; compulsory social security
P Education
Q Human health and social work activities
R, S,
T, U Arts, entertainment and recreation; Other service activities

Note By Nirajan Raut Sir | Miras Academy

 10.00 8.9
7.6
8.00 6.7
6.0 5.8
6.00 4.7
Growth Rate

3.9 4.3
3.5
4.00

2.00

0.00 -0.4

-2.00
--2.4
-4.00

Fiscal Year

National Income Accounting System

• A National Accounting System is defined as the accounting of economic

activities like production, income, consumption, saving investment, etc in
a given period within a particular country.
• Currently, national accounting in Nepal is conducted based on the United
Nations System of National Accounting 2008.
• Fiscal year 2010/2011 is taken as the base year for national income
accounting in Nepal. Previously F/S 2000/01 was taken as the base year.
• Various concepts of national accounting are in practice to measure
economic activities.

Some Statistics about National Income in Nepal

• GDP compilation in Nepal was started in 1961/62

• Regular compilation started in 1964/65
• Compilation is based on SNA recommendation and current series are based
on SNA 2008
• Base year is 2010/11
• Three years revision Policy (Preliminary, Revised, Final) is applied.

Note By Nirajan Raut Sir | Miras Academy

Concepts of National Accounting

• Gross Domestic Product (GDP)

• Gross National Product (GNP)
• Net National Product (NNP)
• National Income (NI)
• Personal Income (PI)
• Disposable Income (DI)
Gross Domestic Product (GDP)

Gross Domestic Product (GDP) is a fundamental measure of a country's economic

activity. It represents the total market value of all final goods and services
produced within a country's borders in a specific period, usually a year. Here's a
breakdown of its key aspects:

What it measures:
• Market value: Focuses on the total dollar value of goods and services
exchanged, not physical quantities.
• Final goods and services: Includes only goods and services consumed or
used directly by end users, not intermediate goods used in production.
• Produced within borders: Considers output generated within the country's
geographical boundaries, regardless of ownership or nationality of
producers.

Why it's important:

• Economic performance: GDP is a major indicator of a country's economic
health and growth. Higher GDP often signifies a larger and more
productive economy.
• Standard of living: Increases in GDP generally correlate with
improvements in living standards, though not always a perfect measure.
• Policy decisions: Governments use GDP data to inform economic
policies, such as taxation, spending, and investments.
• International comparisons: Countries use GDP figures to compare their
economic performance with others on a global scale.

Limitations of GDP:
• Inequality: GDP doesn't necessarily reflect how wealth and income are
distributed within a country.

Note By Nirajan Raut Sir | Miras Academy

 • Environmental impact: It doesn't account for environmental costs or
degradation associated with economic activity.
• Non-market activities: It excludes unpaid work, household
production, and other activities outside the formal market.

How it's calculated:

There are three main approaches to calculating GDP:
• Expenditure approach: Sums up all the final expenditures on goods and
services by various sectors (consumers, businesses, government, etc.).
• Production approach: Adds up the value added at each stage of production
by all industries within the economy.
• Income approach: Summing up all incomes earned by factors of production
within the country (wages, profits, rents, etc.).

Features of Gross Domestic Product:

Gross Domestic Product (GDP) is a complex and multifaceted measure, but some
key features define its essence and impact:

1. Measures Economic Activity:

• GDP is the broadest indicator of a country's economic output,

encompassing all final goods and services produced within its borders in a
given year.

• It captures the size, dynamism, and growth potential of the economy.

2. Reflects Market Value:

• GDP focuses on the total market value of goods and services, not just their
physical quantities.

• This means prices play a crucial role in determining the overall GDP figure.

3. Focuses on Final Goods and Services:

• GDP only considers goods and services consumed or used directly by end-
users; not intermediate goods utilized in production.

• This avoids double counting and provides a clearer picture of the final
output.

Note By Nirajan Raut Sir | Miras Academy

4. Borders Define Scope:

• GDP considers only the output generated within a country's geographical

boundaries, regardless of producers' nationality or ownership.

• This distinguishes domestic production from foreign activity occurring

within the country's borders.

5. Significance for Policy and Analysis:

• GDP serves as a key indicator for policymakers to gauge economic

performance, evaluate policy effectiveness, and inform decisions on
taxation, spending, and investments.

• It also allows for international comparisons of economic size and growth,

facilitating benchmarking and understanding global economic trends.

6. Limitations and Considerations:

• While powerful, GDP has limitations. It doesn't capture income

distribution, environmental impact, or non-market activities.

• Analyzing GDP alongside other indicators like poverty rates, human

development indices, and environmental metrics provides a more
comprehensive picture of a nation's well-being.

7. Different Calculation Approaches:

• Three main methods calculate GDP: expenditure approach (summing final

expenditures), production approach (adding value added at each
production stage), and income approach (summing incomes earned by
factors of production).

• Each approach offers valuable insights but requires careful analysis and
interpretation.

Understanding the major features of GDP is crucial for anyone seeking to grasp
the dynamics of a country's economy. It's a powerful tool for measuring progress
but analyzing it critically and in conjunction with other indicators is essential for
drawing informed conclusions about a nation's overall well-being and
development.

Note By Nirajan Raut Sir | Miras Academy

Major Importance of Gross Domestic Product:

Gross Domestic Product (GDP) occupies a central position in understanding a

country's economic health and well-being. Its importance revolves around several
key aspects:

1. Measure of Economic Size and Performance:

• GDP is the broadest indicator of a country's economic size and activity. It

reflects the total value of goods and services produced within its
borders, providing a snapshot of the economy's scale and dynamism.

• Higher GDP generally signifies a larger and more productive

economy, contributing to improved living standards and overall well-
being.

2. Tool for Policy Decisions:

• Governments heavily rely on GDP data to inform economic policies. They

use it to:

o Assess the effectiveness of existing policies and make adjustments

when needed.

o Allocate resources, prioritize spending, and determine taxation

levels.

o Evaluate the impact of economic shocks and crises on the economy.

3. Benchmarking and International Comparisons:

• GDP allows for meaningful international comparisons of economic

performance. Countries can benchmark their economic standing against
others on a global scale, providing valuable insights into:

o Relative size and growth potential of different economies.

o Effectiveness of economic policies and strategies adopted by

different nations.

o Opportunities for trade and investment partnerships.

4. Understanding Growth Trajectory:

Note By Nirajan Raut Sir | Miras Academy

 • Monitoring changes in GDP over time reveals an economy's growth
trajectory. A rising GDP indicates expansion, while a decline signals
contraction. This information helps policymakers:

o Identify potential economic problems and implement mitigating

measures.

o Formulate strategies to sustain economic growth and development.

o Track progress towards achieving economic goals and objectives.

5. Limitations and Criticisms:

• It's crucial to acknowledge that GDP has limitations. It doesn't capture:

o Income distribution and inequality within a country.

o Environmental impact and sustainability of economic activity.

o Non-market activities and contributions like household production

and volunteer work.

• Overemphasizing GDP can lead to neglecting important aspects of well-

being and focusing solely on material output.

Therefore, while GDP is a powerful tool for measuring economic activity and
informing policy decisions, it should be analyzed critically and in conjunction
with other indicators to achieve a comprehensive understanding of a nation's
economic and social well-being.

Types of Gross Domestic Products:

Here's an explanation of the different types of GDP and their significance:

1. Nominal GDP:

• Measures the total value of all final goods and services produced in a
country during a specific period (usually a year), using the current prices
of that period.

• It doesn't account for inflation, so it can be misleading when comparing

GDP across different years.

Note By Nirajan Raut Sir | Miras Academy

 Formula: Nominal GDP = P1Q1 + P2Q2 + ……. + PnQn
Where,
P1, P2, ……. Pn = market price of the final products or goods and services produced in the current year.
Q1, Q2 ……. Qn = Quantities of the final products or goods and services produced in the current year.
Real GDP x GDP Deflator
Nominal GDP = ( )
100

2. Real GDP:
• Adjusts nominal GDP for inflation, using prices from a base year to
eliminate the impact of price changes.
• It provides a more accurate picture of economic growth or contraction, as
• it isolates the actual changes in output from price fluctuations.

Formula: Real GDP = P0Q1 + P0Q2 + ……. + P0Qn

Where,
P0, P0, ……. P0 = market price of the final products or goods and services produced in the base year.
Q1, Q2 ……. Qn = Quantities of the final products or goods and services produced in the current year.
Nominal GDP
Real GDP = ( GDP Deflator ) x 100

3. GDP per capita:

• Divides GDP by the total population of a country, indicating the average

economic output per person.

• It's a measure of living standards and economic well-being, although it

doesn't reflect income distribution or inequality.

4. GDP deflator:

• A price index that measures the changes in the overall price level of all
goods and services produced in the economy.

• It's used to convert nominal GDP to real GDP, allowing for accurate
inflation-adjusted comparisons.

5. Potential GDP:

• Represents the maximum level of output an economy can sustainably

produce with its available resources and technology, assuming full
employment.

Note By Nirajan Raut Sir | Miras Academy

 • It's a theoretical concept used to assess the degree of economic slack or
overheating in an economy.

6. Gross National Product (GNP):

• While not strictly a type of GDP, it's a related concept that measures the
total value of all final goods and services produced by a country's
citizens, regardless of where the production takes place.

• It includes income earned by domestic residents from overseas investments

but excludes income earned by foreign residents within the country.

Understanding the distinctions between these types of GDP is essential for

interpreting economic data, making informed policy decisions, and comparing
economic performance across countries and periods. Each type offers a different
perspective on the economy, highlighting specific aspects of economic activity
and growth.

Brief Concept on GDP Deflator:

The GDP deflator is a crucial economic indicator that helps us understand price
changes and their impact on economic output. Here's a breakdown of what it is
and why it matters:

What is the GDP Deflator?

• It's a price index that measures the average price level of all final goods
and services produced within a country's borders in a given year.

• Think of it as a measure of inflation for the entire economy, not just for
specific sectors or goods.

• It's expressed as a percentage of a chosen base year (usually a year with

stable prices), where 100 represents no change in prices since the base year.

Why is the GDP Deflator important?

• Understanding inflation: It provides a broader picture of inflation

compared to consumer price indices, which focus on specific baskets of
goods and services.

Note By Nirajan Raut Sir | Miras Academy

 • Comparing economic output across years: Real GDP (adjusted for
inflation) can be compared across years to accurately measure economic
growth, unlike nominal GDP which gets inflated by price changes.

• Policy decisions: The deflator helps policymakers understand how

inflation affects economic activity and informs decisions on fiscal and
monetary policies.

• Financial analysis: It's used by businesses and investors to assess the

impact of inflation on their investments and financial performance.

Calculating the GDP Deflator:

The formula is: Nominal GDP

Formula: GDP Deflator = ( ) x 100
Real GDP

• Nominal GDP: Total value of goods and services produced in a year using
current prices.

• Real GDP: Total value of goods and services produced in a year using
prices from the base year.

Interpretation:

• Deflator > 100: Inflation, prices have increased since the base year.

• Deflator = 100: No inflation, prices have stayed the same.

• Deflator < 100: Deflation, prices have decreased since the base year.

Limitations of the GDP Deflator:

• It only measures domestic prices, not international ones.

• It doesn't capture changes in quality of goods and services.

• It can be sensitive to changes in the base year.

Overall, the GDP deflator is a valuable tool for understanding inflation and its
impact on economic activity. It provides a broader perspective than consumer
price indices and is crucial for policymakers, businesses, and investors alike.

Note By Nirajan Raut Sir | Miras Academy

Differences between Real GDP and Nominal GDP:

Both real GDP and nominal GDP measure the size of an economy, but they do it
in different ways, leading to different interpretations and applications. Here's a
breakdown of their key differences:

1. Price Adjustment:

• Nominal GDP: Measures the total value of all final goods and services
produced in a country during a specific year, using current prices of that
year. It doesn't take inflation into account.

• Real GDP: Adjusts nominal GDP for inflation, using prices from a fixed
base year to eliminate the impact of price changes. This provides a more
accurate picture of changes in the actual volume of goods and services
produced.

2. Interpreting Growth:

• Nominal GDP: Increases can be deceiving because they might simply

reflect inflation, not real growth in production. Comparing nominal GDP
across different years with varying inflation rates can be misleading.

• Real GDP: Increases indicate actual growth in the economy's output, as it

isolates changes in output from price fluctuations. This allows for more
accurate comparisons of economic performance across countries and
different time periods.

3. Example:

• Imagine a country produces 10 apples in a year, costing $1 each. Nominal

GDP would be $10. The next year, due to inflation, the price rises to $2,
but the number of apples remains the same. Nominal GDP would be $20,
though actual production hasn't doubled. Real GDP, adjusted for inflation,
would remain at $10, reflecting the unchanged production volume.

4. Applications:

• Nominal GDP: Useful for tracking short-term trends in economic activity,

calculating budget allocations, and making revenue projections based on
current prices.

Note By Nirajan Raut Sir | Miras Academy

 • Real GDP: Crucial for analyzing long-term economic growth, comparing
economic performance across countries and time periods, and informing
policies aimed at sustainable economic development.

5. Choosing the Right Measure:

• The choice between nominal and real GDP depends on the specific
purpose. For analyzing long-term economic trends and international
comparisons, real GDP is more appropriate. For short-term analysis and
budgetary matters, nominal GDP might be sufficient.

Remember, both nominal and real GDP, along with other indicators, contribute to
a holistic understanding of a country's economic well-being.

In other ways:

Both Real and Nominal GDP are crucial measures of a country's economy, but
they differ significantly in their perspective:

Nominal GDP:

• Measures the total value of all final goods and services produced in a
country in a given year, using the current prices of that year.

• Imagine it as the price tag of the entire economy, constantly changing due
to inflation, price fluctuations, and changes in product offerings.

• Limitations: It can be misleading when comparing across years due to

inflation, making it difficult to assess real economic growth.

Real GDP:

• Adjusts Nominal GDP for inflation, using prices from a fixed base year to
eliminate the impact of price changes.

• Think of it as the "constant price tag" of the economy, reflecting the actual
changes in the volume of goods and services produced, independent of
price changes.

• Advantages: Enables accurate comparisons of economic growth or

contraction across different years and provides a clearer picture of the
economy's performance.

Note By Nirajan Raut Sir | Miras Academy

 Feature Nominal GDP Real GDP

Price Level Current prices Base year prices

Impact of Inflation Reflects inflation Eliminates inflation
Usefulness for Difficult to compare Accurate for comparing across
Comparison across years years
Focus Total market value of Actual volume of output
output

Which one is superior: Real GDP Or Nominal GDP

While both Real and Nominal GDP offer valuable insights into a country's
economy, Real GDP holds several advantages that make it generally
considered the superior measure for most purposes:

1. Eliminates Distortion of Inflation:

• Nominal GDP simply reflects the total value of goods and services at
current prices, which can be inflated by price increases rather than actual
growth in production.

• Real GDP adjusts for inflation by utilizing a fixed base year price index,
isolating the actual change in the volume of goods and services produced.
This provides a more accurate picture of economic performance.

2. Enables Accurate Comparisons:

• Comparing Nominal GDP across different years is tricky due to inflation.

An increase might be due to genuine growth or simply rising prices.

• Real GDP, by removing the inflation factor, allows for meaningful

comparisons of economic performance across time periods and between
countries. This facilitates analysis of trends, benchmarking, and evaluation
of policy effectiveness.

3. Provides a Clearer Picture of Living Standards:

• Real GDP reflects the actual amount of goods and services available to
consumers, which is directly linked to living standards.

Note By Nirajan Raut Sir | Miras Academy

 • Nominal GDP, influenced by inflation, can mask changes in real
purchasing power and living conditions, making it a less reliable indicator
of well-being.

4. Focuses on Underlying Economic Activity:

• Real GDP isolates the true change in production volume, independent of

price fluctuations. This allows for a better understanding of the underlying
factors driving economic growth or contraction.

• Nominal GDP, on the other hand, can be influenced by temporary price

shocks or changes in product mix, making it harder to discern the
underlying trends in the economy.

5. Guides Policy Decisions:

• Policymakers rely on economic data to formulate strategies and allocate

resources. Real GDP provides a more accurate basis for these decisions, as
it reflects the actual state of the economy and the needs of the population.

• Focusing solely on Nominal GDP could lead to misinformed policies based

on inflated figures, potentially hindering economic progress and well-
being.

However, it's important to remember that Real GDP is not a perfect measure
either. It doesn't account for:

• Income distribution: Real GDP growth doesn't guarantee that everyone

benefits equally.

• Environmental impact: Economic activities can have negative

environmental consequences not captured by Real GDP.

• Non-market activities: Unpaid work and household production contribute

significantly to well-being but are not included in Real GDP.

Therefore, while Real GDP is generally superior to Nominal GDP for most
purposes, a holistic understanding of the economy requires considering other
indicators alongside it to paint a complete picture of a nation's well-being and
progress.

Note By Nirajan Raut Sir | Miras Academy

National Income Accounting:

Gross Domestic Product (GDP) is a fundamental macroeconomic indicator that

quantifies the total monetary value of all final goods and services produced within
a country's borders during a specific period, usually a quarter or a year.

GDP is estimated following three methods simultaneously, namely,

➢ Production method (Value Added Method),

➢ Expenditure method, and
➢ Income method

Production (or Output) Approach:

The production approach, also known as the value-added method, focuses on

the value added by each sector of the economy at various stages of production.
This method aims to capture the incremental value created by each industry
without double-counting.

➢ This method focuses on the value added at each stage of production within
an economy during a specific period.

➢ It calculates the final market value of all goods and services produced:

✓ Value Added at Each Stage: The difference between the value of

output and the value of intermediate inputs used in production.

Formula: GDP = Σ Value Added at Each Stage

Or, Value of Output – Intermediate Consumption

Example: If the total value of final goods and services produced in the same
country is $2400, then the output approach would also calculate a GDP of $2400.

Producer Stage of Value of Cost of Intermediate Gross Value

Production Output Goods Added
Farmer Wheat 500 - 500
Miller Flour 700 500 200
Bakery Bread 1000 700 300
Total 2200 1200 1000

Note By Nirajan Raut Sir | Miras Academy

Expenditure Approach:

The expenditure approach, on the other hand, measures the total spending on
goods and services by households, businesses, governments, and foreigners. The
income approach estimates the total income earned by individuals and businesses
in the economy.

➢ This method sums up all the spending within an economy during a specific
period.

➢ It consists of four main components:

✓ Consumption (C): Spending by households on goods and services

like food, housing, and entertainment.

✓ Investment (I): Spending by businesses on capital goods like

machinery, buildings, and inventories.

✓ Government Spending (G): Spending by government on things like

infrastructure, education, and healthcare.

✓ Net Exports (NX): Value of exports minus the value of imports.

Example: Imagine a country spends $1000 on consumption, $500 on investment,

$300 on government spending, and exports $600 while importing $400. Using the
expenditure approach, its GDP would be $1000 + $500 + $300 + ($600 - $400)
= $2400.
Formula: GDP = C + I + G + NX(X-M)

Income Approach:

This method measures just national income at the phase of distribution and
appears as income paid and or received by individual of the country. Thus, under
this method, national income is obtained by Summing up the incomes of all
individuals of the country.

➢ This method focuses on the income generated within the economy during
a specific period.
➢ It includes different types of income earned by various participants:

✓ Compensation of Employees: Wages and salaries earned by

workers.

Note By Nirajan Raut Sir | Miras Academy

 ✓ Profits of Enterprises: Profits earned by businesses.

✓ Net Taxes on Production and Imports: Indirect taxes (e.g., Custom

duty, Excise duty, VAT) minus subsidies.

✓ Net National Income from Abroad: The difference between income

earned by domestic residents abroad and income earned by foreign
residents domestically.

Formula: GDP = Compensation of Employees + Profits of Enterprises + Net

Taxes on Production and Imports + Net National Income from Abroad

Formula: GDP = Compensation of Employees + Profits of Enterprises + Net

Taxes on Production and Imports + Net National Income from Abroad

Example: Using the same country as before, let's say salaries add up to $1200,
businesses earn $700 in profits, net taxes come to $300, and net income from
abroad is $200. The income approach would yield a GDP of $1200 + $700 +
$300 + $200 = $2400.

The reason behind the Low GDP Growth rate in Nepal:

Nepal has experienced relatively low GDP growth compared to other countries in
recent years. While there's no single factor solely responsible, a complex interplay
of internal and external challenges contributes to this situation. Here are some
key causes:

Internal factors:

• Political instability: Frequent changes in government, political uncertainty,

and bureaucratic hurdles create an environment less conducive to
investment and economic growth.

• Weak infrastructure: Inadequate transportation networks, limited access to

electricity, and unreliable water supply hinder business operations and limit
economic potential.

• Limited diversification: Nepal's economy heavily relies on agriculture and

tourism, making it vulnerable to external shocks like natural disasters or
global economic downturns.

Note By Nirajan Raut Sir | Miras Academy

 • Human capital constraints: Limited access to quality education and skill
development hinders workforce productivity and innovation.

• Inefficient public sector: Inefficient government bureaucracy and

corruption can discourage investment and economic activity.

External factors:

• Global economic slowdown: The recent global economic slowdown has

reduced demand for Nepali exports and foreign investment, impacting
growth.

• Dependence on remittances: Nepal relies heavily on remittances from

migrant workers, making its economy vulnerable to fluctuations in foreign
employment opportunities.

• Climate change: Nepal is highly susceptible to natural disasters like

earthquakes and floods, which disrupt economic activity and damage
infrastructure.

• Trade barriers: Limited access to international markets and trade barriers

imposed by neighboring countries can constrain export opportunities.

Addressing these challenges requires a multi-pronged approach:

• Political stability and good governance: Creating a stable and transparent

political environment is crucial for attracting investment and fostering
economic growth.

• Infrastructure development: Investing in transportation, electricity, and

water infrastructure is essential for improving connectivity, reducing costs,
and boosting economic activity.

• Economic diversification: Promoting diversification into sectors like

manufacturing, technology, and services can reduce dependence on
agriculture and tourism and create more resilient economic opportunities.

• Human capital development: Investing in education and skills training can

improve workforce productivity and innovation, leading to higher
economic growth.

Note By Nirajan Raut Sir | Miras Academy

 • Improved public sector efficiency: Streamlining government bureaucracy,
reducing corruption, and enhancing public service delivery can attract
investment and improve the overall business environment.

• International cooperation: Addressing global challenges like climate

change and trade barriers requires international cooperation and support to
create a more conducive environment for Nepal's economic development.

It's important to note that these are just some of the key factors contributing to
Nepal's low GDP. The situation is complex and nuanced, and a comprehensive
understanding requires considering various economic, social, and political
aspects.

Challenges faced while calculating/measuring GDP:

Measuring GDP, while crucial for understanding a nation's economic health, faces
several challenges that can impact its accuracy and interpretation:

Data collection and availability:

• Informal sector: Large informal economies with unregistered businesses

and activities pose significant challenges in accurately capturing their
contribution to GDP.

• Limited resources: National statistical agencies might face resource

constraints, hindering comprehensive data collection and analysis,
particularly in developing countries.

• Quality of data: Data quality can vary, leading to inconsistencies and

inaccuracies, particularly in areas like household income or agricultural
output.

• Timeliness: Data collection and processing can be time-consuming,

leading to delays in releasing GDP estimates.

Methodological challenges:

• Choosing the right approach: Selecting the most appropriate approach

(expenditure, production, income) can be complex and depends on data
availability and the desired level of detail.

Note By Nirajan Raut Sir | Miras Academy

 • Valuation issues: Accurately valuing goods and services, particularly non-
market activities like household production or volunteer work, can be
difficult.

• Deflators and adjustments: Adjusting for inflation and other price changes
can be complex, and the chosen deflators can influence GDP estimates.

• Revisions: GDP estimates are often revised as more data becomes

available, creating uncertainty and potentially misleading interpretations.

Interpretation and limitations:

• Focus on market value: GDP primarily focuses on the market value of

goods and services, neglecting non-market contributions and activities
crucial to well-being.

• Distribution and inequality: GDP doesn't capture income distribution or

inequality within a country, masking disparities in living standards.

• Environmental impact: GDP doesn't account for environmental costs and

degradation associated with economic activity.

• Sustainability and quality of life: GDP growth doesn't necessarily translate

to improved quality of life or sustainable development.

Addressing these challenges requires:

• Investing in data collection: Strengthening statistical infrastructure and

resources for improved data gathering and quality control.

• Developing better methodologies: Continuously refining and adapting

methods to better capture the complexities of modern economies.

• Transparency and communication: Clearly explaining the limitations of

GDP and using it alongside other indicators for a comprehensive
understanding of well-being.

• Promoting sustainable development: Shifting focus towards measuring and

promoting sustainable economic progress that considers environmental
and social well-being.

Note By Nirajan Raut Sir | Miras Academy

Remember, GDP is a valuable but imperfect tool. Recognizing its challenges and
limitations is critical for interpreting economic data responsibly and informing
policies that promote holistic development and well-being.

Gross National Product:

Gross National Product (GNP) is an economic metric that measures the total
market value of all final goods and services produced by a country's residents in
a specific period, typically a year. GNP considers the production of goods and
services both within and outside the country's borders by its nationals.

The key difference between Gross Domestic Product (GDP) and Gross National
Product (GNP) lies in the consideration of income earned by a country's residents
abroad and income earned by foreigners within the country. GNP includes the
following components:

1. Domestic Production by Residents:

This includes the value of all goods and services produced within the
country's borders by its residents, whether individuals or businesses.

2. Net Income from Abroad:

GNP also incorporates the net income earned by the country's residents
from foreign investments minus the net income earned by foreign residents
within the country. This component accounts for income generated by
factors such as profits, dividends, and wages from foreign investments.

Mathematically, GNP is calculated as follows:

Formula: GNP = GDP + Net Factor Income from Abroad (NFIA)

Or, in terms of the expenditure method:

Formula: GNP = C + I + G + (Exports−Imports) + Net Factor Income from Abroad (NFIA)

It's worth noting that GNP is less commonly used in economic analysis and
reporting today compared to GDP. GDP has become a more standard measure
because it focuses solely on the production that occurs within a country's borders,
providing a clearer picture of the economic activity taking place within the
country itself.

In other ways,

Note By Nirajan Raut Sir | Miras Academy

GNP, or Gross National Product, is a measure of a country's economic output,
similar to GDP (Gross Domestic Product). However, there's a key difference in
what they consider:

GDP: Measures the total market value of all final goods and services produced
within a country's borders, regardless of who produces them. So, even if a foreign
company operates a factory in that country, its production contributes to the
country's GDP.

GNP: Measures the total market value of all final goods and services produced
by a country's citizens, both domestically and abroad. So, if a Nepalese citizen
works in a factory in Japan, the income they earn contributes to Nepal's GNP,
even though it wasn't produced within Nepal's borders.

Essentially:

• GDP: Focuses on the location of production.

• GNP: Focuses on the nationality of the producers.

Therefore, GNP:

• Provides a broader picture of a country's economic activity, considering the

contributions of its citizens even when they work abroad.

• Can be more useful for international comparisons when significant foreign

investment is present.

• Reflects the overall wealth and income generated by a nation's citizens.

However, GNP also has limitations:

• Less commonly used and readily available than GDP.

• Data on income earned by citizens abroad can be challenging to collect,

leading to less accurate estimates.

• Shares limitations with GDP, such as neglecting income distribution,

environmental impact, and non-market activities.

In conclusion, both GDP and GNP offer valuable insights into a country's
economy. While GDP is more widely used and focuses on domestic production,
GNP provides a broader picture of a nation's economic activity generated by its

Note By Nirajan Raut Sir | Miras Academy

citizens. Understanding both metrics can help you get a more complete picture of
a country's economic health and well-being.

Differences between GDP and GNP:

Both Gross Domestic Product (GDP) and Gross National Product (GNP) are
important metrics for understanding a country's economic activity, but they differ
in their scope and focus:

1. Focus:

• GDP: Measures the total market value of all final goods and services
produced within a country's borders, regardless of who produces them.
This includes the contributions of both domestic and foreign companies
operating within the country.

• GNP: Measures the total market value of all final goods and services
produced by a country's citizens, both domestically and abroad. This
includes income earned by citizens working in other countries, but
excludes income earned by foreign residents within the country.

2. Ownership:

• GDP: Considers production based on location, regardless of ownership.

Even goods and services produced by foreign-owned companies within the
country contribute to GDP.

• GNP: Focuses on production based on nationality, so income earned by

domestic residents abroad adds to GNP, while income earned by non-
residents within the country is excluded.

3. Example:

• Imagine a Japanese car manufacturing company operating in Nepal.

o GDP: The value of cars produced in the Nepalese factory contributes

to Nepal's GDP.

o GNP: The income earned by Japanese employees working in the

factory contributes to Japan's GNP, but not Nepal's.

4. Usefulness:

Note By Nirajan Raut Sir | Miras Academy

 • GDP: More widely used for assessing a country's domestic economic
activity and growth.

• GNP: Provides a more complete picture of the economic activity generated

by a country's citizens, especially when significant foreign investment is
present. Useful for international comparisons where ownership structures
vary.

5. Limitations:

• GDP: Neglects income earned by citizens abroad and can be distorted by

foreign investment.

• GNP: Data on income earned by citizens abroad can be challenging to

collect, leading to less accurate estimations. Both share limitations with
neglecting income distribution, environmental impact, and non-market
activities.

In summary:

• GDP: Focuses on domestic production by all entities within a country's

borders.

• GNP: Focuses on the production of a country's citizens both domestically

and abroad.

Feature GDP GNP

Focus Location of production Nationality of producers
Where Produced within borders Earned by citizens, regardless of
income location
counts
Example Production by foreign Income earned by citizens abroad
companies within the country
Usefulness Comparing domestic economic Comparing overall economic
activity activity of a nation's citizens

Both metrics are valuable tools, but choosing the appropriate one depends on the
specific analysis and desired perspective. Understanding the differences between
GDP and GNP allows for a more comprehensive understanding of a country's
economic health and well-being.

Note By Nirajan Raut Sir | Miras Academy

Which Indicators depict (describe) the macroeconomic situation of an
economy? Explain with the calculation method of those indicators.

Or,

What are the indicators that show the macroeconomic conditions of the
economy? Explain these indicators along with calculation methods. (NRB,
2075)

Macroeconomic indicators act like vital signs, giving a broad picture of an

economy's health and performance. Let's explore some key indicators along with
their calculation methods:

1. Gross Domestic Product (GDP):

• Measures: Total market value of all final goods and services produced
within a country's borders in a given year.

• Calculation: Three main approaches –

o expenditure (sum of consumption, investment, government

spending, and net exports),
Formula: GDP = C + I + G + NX(X-M)

o production (value added at each stage), and

Formula: GDP = Σ Value Added at Each Stage

Or, Value of Output – Intermediate Consumption

o income (summation of wages, rents, interest, and profits).

Formula: GDP = Compensation of Employees + Profits of Enterprises + Net
Taxes on Production and Imports + Net National Income from Abroad

• Significance: Reflects overall economic size, growth, and activity.

2. Inflation Rate:

• Measures: Change in the average price level of goods and services over
time.

Note By Nirajan Raut Sir | Miras Academy

 • Calculation: (Current price index - Base year price index) / Base year price
index x 100.
CPI in Previous Year − CPI in Current Year
Formula: Inflation Rate = ( )X 100
CPI in Previous Year

• Significance: Impacts purchasing power, income distribution, and

investment decisions.

3. Unemployment Rate:

• Measures: Percentage of the labor force without jobs but actively seeking
them.

• Calculation: Unemployed / Labor force x 100.

𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑 𝑃𝑒𝑜𝑝𝑙𝑒
Formula: Unemployment Rate = X 100
𝑇𝑜𝑡𝑎𝑙 𝐿𝑎𝑏𝑜𝑢𝑟 𝐹𝑜𝑟𝑐𝑒

• Significance: Reflects economic activity, labor market conditions, and

potential social issues.

4. Interest Rates:

• Measures: Cost of borrowing money.

• Calculation: Varies depending on the type of interest (e.g., central bank

rate, lending/borrowing rates).

• Significance: Influences investment, spending, and overall economic

activity.

5. Exchange Rate:

• Measures: Price of one country's currency in terms of another.

• Calculation: Price of foreign currency / Domestic currency.

• Significance: Impacts exports, imports, and international trade

competitiveness.

6. Balance of Payments:

• Measures: Total value of a country's transactions with the rest of the world
in a given period.

Note By Nirajan Raut Sir | Miras Academy

 • Calculation: Sum of current account (trade balance + net income + net
current transfers), capital account (net foreign investment), and financial
account (net foreign investment in financial assets).

Formula: BOP = Current Account + Capital Account +

Financial Account + Balancing Item = 0

• Significance: Reflects international trade and investment flows, potential

external imbalances.

7. Balance of Trade:

• Calculation Method: The balance of trade reflects the difference between a

country's exports and imports of goods and services.
• It is calculated as:
Formula: Balance of Trade=Exports−Imports

8. Consumer Confidence Index:

• Measures: Consumer expectations about the economy and their

willingness to spend.

• Calculation: Varies depending on survey methodology and weighting of

sub-indices.

• Significance: Reflects spending behavior, economic sentiment, and

potential future economic activity.

Remember, these are just a few indicators that are used to assess different aspects
of the economy. Additionally, the calculation methods can vary depending on
specific definitions and data sources.

Analyzing these indicators in conjunction with other factors like historical trends,
government policies, and global events can provide a more comprehensive
understanding of the macroeconomic conditions and predict future trends.

Summary:

National Income Accounting System

• National Accounting System is defined as the accounting of economic
activities like production, income, consumption, saving investment, etc in
a given period within a particular country.

Note By Nirajan Raut Sir | Miras Academy

 • Currently, national accounting in Nepal is conducted based on the United
Nations System of National Accounting 2008.
• Fiscal year 2010/2011 is taken as the base year for national income
accounting in Nepal. Previously F/S 2000/01 was taken as the base year.
• Various concepts of national accounting are in practice to measure
economic activities.

Some Statistics about National Income in Nepal

• GDP compilation in Nepal was started in 1961/62
• Regular compilation started in 1964/65
• The compilation is based on SNA recommendation and the current series
is based on SNA 2008
• The base year is 2010/11
• Three years revision Policy (Preliminary, Revised, Final) is applied.
Concepts of National Accounting
• Gross Domestic Product (GDP)
• Gross National Product (GNP)
• Net National Product (NNP)
• National Income (NI)
• Personal Income (PI)
• Disposable Income (DI)

Gross Domestic Product, GDP

• Gross Domestic Product (GDP) is the total monetary or market value of all
the final goods and services produced within a country's boundary in a
specific period.
• Though GDP is usually calculated on an annual basis, it can be calculated
on a semi-annually and quarterly basis as well.
• In GDP boundary of the Nation is the most important thing. In GDP, the
contribution of national as well as foreign factors of production within the
boundary of the nation is considered.
• GDP can be calculated as GDP in market price and GDP at Factor Cost:
o GDPmp = P1×Q1+P2×Q2+P3×Q3…………. +Pn×Qn
o GDPfc = GDPmp –Net indirect Tax (Indirect Tax-Subsidy)
o GDPfc = GDPmp - Indirect Tax + Subsidy
• The Current GDP of Nepal is Rs. 4851.6 billion as per the economic survey.

Note By Nirajan Raut Sir | Miras Academy

Gross National Product, GNP
• Gross National Product (GNP) is the total monetary or market value of
all the final goods and services produced by the factor of production
owned by residents’ borders in a specific period.
• GNP is usually calculated on an annual basis; it can also be calculated
on a semi-annually and quarterly basis as well.
• In GNP the factor of production owned by residents is the most
important thing. In GNP, the contribution of the national factor of
production within the boundary and outside the boundary of the nation
is considered.
• GNP can be calculated as GNP in market price and GNP at Factor Cost
• GNPmp = GDPmp + NFIA (X-M)
• GNPfc = GDPfc + NFIA (X-M)
• GNPfc = GNPmp - Indirect Tax + Subsidy
• The Current GNP of Nepal is Rs. 4882.6 billion as per the economic
survey.
Economic growth is based on the real GDP rather than the nominal GDP.

Why to Calculate GDP/GNP?

• To determine economic growth

• To assess the Strengths and Weakness of the economy
• To compare the progress of different countries
• For researchers and academicians
• To assess the effectiveness of economic policies and provide necessary
feedback.
• To assess development milestones (e.g. per capita income USD 12,100 by
2100 BS)
• To compare with own past
• To analyze the effectiveness of allocation of factors of production

Net National Income, NNP

• Net national product is considered a true measure of national product or
income. It is defined as GNP minus depreciation or capital consumption
allowance or wear and tear.
• NNP can be expressed as NNP at market price and NNP at factor cost.

Note By Nirajan Raut Sir | Miras Academy

 • Net national product at market prices is the net value of final goods and
services evaluated at market prices in the course of one year in a country.
• Net national product at factor cost is the net output evaluated at factor
prices. It includes income earned by factors of production through
participation in the production process such as wages and salaries, rents
profits, etc. NNP at factor cost is also called National Income.
o NNPmp = GNPmp – Depreciation (Replacement cost)
o NI or NNPfc = GNPfc – Depreciation (Replacement cost)
o NNPfc = NNPmp – Net indirect tax
o NNPfc = NNPmp – Indirect tax + Subsidy

Personal Income PI
• Personal income is the total income received by the individuals of a country
from all sources before direct taxes in one year.
• It is derived from national income by deducting undistributed corporate
profits, profit taxes, and employee’s contributions to social security
schemes.
• Personal Income = National Income – Undistributed Corporate Profits –
Profit Taxes – Social Security Contributions + Transfer Payments + Interest
on Public Debt.

Disposable Income DI
• Disposable income or personal disposable income means the actual income
that can be spent on consumption by individuals and families.
• DI = PI – PT
• DI = C + S
Where,
PT = Personal Tax
C = Consumption
S = Saving

Per Capita Income

• The average income of the people of a country in a particular year is called
Per Capita Income for that year.
• This concept enables us to know the average income and the standard of
living of the people. But it is not very reliable due to unequal distribution
of national income exist in every country.

Note By Nirajan Raut Sir | Miras Academy

 • The per capita income of Nepal for year 2078/79 is estimated as 1381 US
dollar.
Per capita GDP, GNI and GNDI in (US$)

5000 1683
1467 1514 1462 1557
4000 1327
979 1008 1028 1069 1139 1156 1175 1206 1170 1246
1381
3000 1042
818 814 820 836 884 893
1239 1372
2000 814 808 814 824 871 882 1032 1168 1194 1156
1000
0

GDP Percapita GNI Percapita GNDI Percapita

Methods of Income Measurement

• The National Income is measured on the assumptions that total income,

total production and total expenditure in an economy tends to be equal.
• Based on this assumption GDP can be measured by following three
measures:
o Production Method
✓ Final Product Method
✓ Value Added
o Income Method
o Expenditure Method

Final Product Method

• According to this method, the total value of final goods and services
produced in a country during a year is calculated at market prices.
• To find out the GDP, all economic activities in the country are divided into
18 headings under primary, secondary, and tertiary sectors. The
contribution of each sub-sector is calculated in market price separately. The
GDP is the aggregate of all these 18 headings. (System of National
Accounting-2008)
• Only the final goods and services are included, and the intermediary goods
and services are left out. It can be explained by the following examples

Note By Nirajan Raut Sir | Miras Academy

 • This method is popular in developing countries like Nepal.
Example

Particulars Amount In Billion Rupees

Primary Sector 900
Secondary Sector 500
Service Sector 1600
Gross Domestic Product (GDP) 3000
+ Net Factor Income from Abroad (NFIA) 50
Gross National Product 3050
less, Depreciation 250
Net National Product 2800
–Indirect tax+ subsidy -300
Net Factor Income or National Income 2500

Value Added Method

➢ Value added refers to the addition of value to the raw material (intermediate
goods) by a firm, by its productive activities.
➢ It is the contribution of an enterprise to the current flow of goods and
services.
➢ It is calculated as the difference between the value of output and the value
of intermediate consumption.
➢ The GDP is calculated by aggregating the value addition of all goods and
services in its production process.

Value added method.

Producer Production Value of the Value of the Total value
Phase Raw Final addition
Materials Product
Farmer Wheat 100 200 100
Flour Mill Flour 200 400 200
Bread shop Bread 400 600 200

Total 700 1200 500

Income Method
• According to this method, the net income payments received by all citizens
of a country in a particular year are added up, i.e., net incomes that accrue
to all factors of production by way of net rents, net wages, net interest, and

Note By Nirajan Raut Sir | Miras Academy

 net profits are all added together but incomes received in the form of
transfer payments are not included in it.
• The data about income are obtained from different sources, for instance,
from income tax department in respect of high-income groups and in case
of workers from their wage bills.
• This method is popular in developed countries.

Income Method

Particulars Amount Rs.

billions
Salary and wages 500
Interest on capital 300
Rent 500
profit 800
Depreciation 250
Net indirect tax (Indirect tax-subsidy) 450
Gross Domestic Income (GDI) 3000
Net Factor Income from Abroad (NFIA) 50
Gross National Product (GNP) 3030
less, Depreciation 250
Net National Product (NNP) 2800

Expenditure Method

• According to this method, the total expenditure incurred by the society in

a particular year is added together and includes personal consumption
expenditure, net domestic investment, government expenditure on goods
and services, and net foreign investment.
• This concept is based on the assumption that national income equals
national expenditure.
• The national income measurement from expenditure method can be
explained by following formula & with a hypothetical example:
• Y = C + I + G + (X – M)
Expenditure Method
Particulars Amount Rs in Billion
Consumption Expenditure 1700
Investment Expenditure 400
Government Expenditure 900

Note By Nirajan Raut Sir | Miras Academy

 Gross Domestic Expenditure (GDE) 3000
Net factor income from abroad 50
Gross National Expenditure (GNE) 3030

Difficulties in National Income Accounting

• Lack of Reliable Data

• Existence of Non-Monetized Sector
• Difficulties in the Classification of Working Population
• Illegal Income
• Adjusting changes in price level
• Difficulties due to illiteracy and undulation
• Lack of skilled manpower in statistical field
• Lack of adequate information for accounting purpose.

Challenges of Economic Development

• Economic Growth
• Economic Development
• Factors Affecting Economic Development
• Difference between Economic Growth and Economic Development
• Challenges of Economic Development in Nepal.

Multiple Choice Questions Related to National Income

1. GDP is.
(a) Final value of goods
(b) Final value of services
(c) Final value of goods and services
(d) Final value of gods and services during a fiscal year
2. GDP is.
(a) Final value of goods and service during a fiscal year
(b) All economic activities inside the country during a fiscal year.
(c) All economic activities made by both domestic and foreign factors
inside the
country
(d) All of them
3. GDP is.

Note By Nirajan Raut Sir | Miras Academy

 (a) Final value of goods and service during a fiscal year
(b) All economic activities inside the country during a fiscal year
(c) Product of market price and final value of goods and services during a
fiscal year
(d) All of them
4. GDP is.
(a) C+G+I+(X-M)
(b) P1 Q1+P2 Q2+...+Pn Qn
(c) Both 'a' and 'b'
(d) None of them
5. Balance of trade is.
(a) (X-M)
(b) (M-X)
(c) (R-F)
(d) All of them
6. The nature of BOT is.
(a) Surplus BOT
(b) Deficit BOT
(c) Balance BOT
(d) All of them
7. BOT of Nepal is.
(a) Surplus BOT
(b) Deficit BOT
(c) Balance BOT
(d) All of them
8. Surplus BOT means.
(a) Export < Import
(b) Export > Import
(c) Export = Import
(d) None of them
9. Balance BOT means.
(a) Export < Import
(b) Export >Import
(c) Export = Import
(d) None of them
10. Deficit BOT means.
(a) Export <Import

Note By Nirajan Raut Sir | Miras Academy

 (b) Export >Import
(c) Export = Import
(d) None of them
11. GNP is.
(a) Final value of goods and services during a fiscal year
(b) All economic activities inside the country during a fiscal year
(c) All economic activities made by only domestic factors of production
both inside
and outside the country during a fiscal year time
(d) All of them
12. Economic activities made by Nepalese people in India are;
(a) GNP of India
(b) GDP of Nepal
(c) GNP of Nepal
(d) All of them
13. Economic activities made by Nepalese people in India are;
(a) GDP of India
(b) GDP of Nepal
(c) GNP of India
(d) All of them
14. Economic Activities made by Nepalese people in Malaysia are;
(a) GDP of Nepal and GNP of Malaysia
(b) Only the GDP of Malaysia
(c) Only GNP of Nepal
(d) GDP of Malaysia and GNP of Nepal.
15. Economic activities made by Indian people in Nepal is;
(a) GDP of India and GNP of Nepal
(b) GDP of Nepal only
(c) GNP of India only
(d) GDP of Nepal and GNP of India
16. GNP is.
(a) C+G+I+(X-M)
(b) P1 Q1+P2 Q2+...+PnQn
(c) C+G+I+(X-M) +NFIA
(d) None of them
17. What are the components of gross investment?
(a) Net investment

Note By Nirajan Raut Sir | Miras Academy

 (b) Depreciation
(c) Both 'a' and 'b'
(d) None of them
18. Net factors income from abroad (R-F) indicates.
(a) Export-Import
(b) Import-Export
(c) Earnings of domestic factors outside the country - Earnings of foreign
factors
production inside the country
(d) All of them
19. NNP is.
(a) Final value of goods and services during a fiscal year
(b) All economic activities inside the country during a fiscal year
(c) GNP+ DEP
(d) GNP-Consumption of allowance of fixed assets
20. `GNP excludes.
(a) Earning of domestic people inside the country
(b) Earning of domestic people outside the country.
(c) Earning of foreign factors inside the country
(d) All of them
21. Which of the following is NNP?
(a) C+G+I+(X-M)
(c) C+G+I+(X-M) +NFIA
(b) P1 Q1+P2 Q2+...+PnQn
(d) C+G+I+(X-M) +NFIA- Dep
22. Which of the following are not part NI or GDP but Part of personal income?
(a) Pension, donation, gift
(b) Unemployment, widow old age allowances
(c) Interest on national debt
(d) All of them
23. The components of profit are.
(a) Dividend
(b) Undistributed
(c) Corporate income tax
(d) All of them
24. Compensation of labor is.
(a) Wage and salary, Room accommodation

Note By Nirajan Raut Sir | Miras Academy

 (b) Bonus, travel and tour facilities
(c) Education and health facilities
(d) All of them
25. GDP at factors cost is.
(a) C+G+I+(X-M)
(b) P1 Q1+P2 Q2+...+PnQn
(c) C+G+I+(X-M) +NFIA
(d) GDPMP - Net indirect tax
26. Net Indirect tax is:
(a) Direct Tax-Subsidy
(b) Direct tax + Subsidy
(c) Indirect Tax-Subsidy
(d) Indirect tax+ Subsidy
27. Disposable income is.
(a) Income - Indirect
(b) Income + Indirect tax
(c) Income - Direct tax
(d) Income +Direct tax
28. What condition GDPMP is equal to GDPFC?
(a) GNPMP-NFIA
(b) GDPFC-NIT
(c) Indirect Tax - Subsidy =0
(d) NDPFC-NIT
29. At what condition GNPMP is equal to GNPFC?
(a) NFIA =0
(b) (R-F) =0
(c) E-M=0
(d) Indirect tax= Subsidy
30. Which of the following is not GDP?
(a) Second-hand product
(b) Interest
(c) Rent
(d) Mixed income
31. Which of the following is not the GNP of India?
(a) Earing of Indians in the USA
(b) Earing of Indian in the UK
(c) Earing of Indians in Nepal

Note By Nirajan Raut Sir | Miras Academy

 (d) Earing of Indians in India
32. Which of the following is the GDP of UAS?
(a) Earing of Indians in the USA
(b) Earing of Indian in the UK
(c) Earing of Indians in Nepal
(d) Earing of Indians in India
33. Which of the following is personal income, not NI?
(a) Pension
(b) Unemployment allowances
(c) Old age and widow allowances
(d) All of them
34. Which of the following is national income but not personal income?
(a) Retained income
(b) Social security
(c) Corporate income tax
(d) All of them
35. Which of following is both personal income and national income?
(a) Dividend
(b) Retained income
(c) Social security
(d) All of them
36. Which of following is not national income?
(a) Interest on national debt
(b) dividend
(c) undistributed profit
(d) Bonus
37. Which of following year is least GDP growth rate in Nepal?
(a) FY 2007/08
(b) FY 2015/16
(c) 2016/17
(d) 2017/18
38. Which of the following country has highest GDP?
(a) India
(b) China
(c) UK
(d) Canada
39. Which of following year is least GDP growth rates in Nepal?

Note By Nirajan Raut Sir | Miras Academy

 (a) FY2001/02
(b) FY2003/04
(c) FY2006/07
(d) FY2009/10
40. Which of the following years is least GDP growth rates in Nepal?
(a) FY 2001
(b) 2007
(c) 2015
(d) 2017
41. Which of the following countries have had the highest GDP growth in the
last 10
years?
(a) India and China
(b) China and USA
(c) India and USA
(d) China and Ethiopia
42. Real GDP is calculated in:
(a) Base price
(b) Market price
(c) Current Price
(d) All of them
43. Nominal GDP is calculated in.
(a) Base price
(b) Market price
(c) Both market and base price
(d) All of them
44. Which of the following is real GDP?
(a) C+G+I+(X-M)
(b) P1 Q1+P2 Q2+...+PnQn
(c) P0 Q1+P0 Q2+.... +...+P0 Qn
(d) All of them
45. GDP Deflator is.
Nominal GDP
(a) × 100
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃
Real GDP
(b) × 100
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
Real GDP
(c) × Nominal GDP
100
(d) None of them

Note By Nirajan Raut Sir | Miras Academy

46. Real GDP growth is.
Current Real GDP−Previous Real GDP
(a) × 100
𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃
Nominal GDP
(b) × 100
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃
Current Nominal GDP−Previous Nominal GDP
(c) × 100
𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
(d) All of them
47. Real GDP is.
GDP Deflator
(a) × 100
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
Current Real GDP−Previous Real GDP
(b) × 100
𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃
Nominal GDP
(c) × 100
𝐺𝐷𝑃 𝐷𝑒𝑓𝑙𝑎𝑡𝑜𝑟
Current Nominal GDP−Previous Nominal GDP
(d) × 100
𝑃𝑟𝑒𝑣𝑖𝑜𝑢𝑠 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
48. GDP gap is.
(a) Gap between nominal and real GDP
(b) Gap between Potential and actual GDP
(c) Gap between nominal and GDP deflator
(d) Gap between Current and previous GDP
49. Actual GDP shows.
(a) Actual use of resources in an economy
(b) Actual use of labour resources
(c) Actual use of capita resources
(d) All of them
50. Potential GDP is
(a) Actual use of resources in an economy
(b) Actual use of labour resources
(c) Possible economic activities obtained by use resources in an economy
(d) All of them

Per Capita Income

• Per capita is a Latin term that translates to "by head." Per capita means the
average per person and is often used in place of "per person" in statistical
observances.
• The phrase can be used for almost any kind of population description but
is common when discussing economic data.

Note By Nirajan Raut Sir | Miras Academy

 • This could include a country's:

o Gross domestic product (GDP)

o Gross national product (GNP)
o Income
• Per capita, income is a measure of the amount of money earned per person
in a nation or geographic region.
• Per capita, income is used to determine the average per-person income for
an area and to evaluate the standard of living and quality of life of the
population. Per capita income for a nation is calculated by dividing the
country's national income by its population.
National Income or Total Income
Formula: Per Capita Income = Population

For example, U.S. gross domestic product (GDP) was just over $20 trillion
in 2021 according to the CIA World Factbook (the latest information available
from the CIA). The United States' population in the same period was
approximately 337.3 million. That results in a GDP per capita of $59,500.

Highlights:

• Per capita is a term used in economic and statistical analysis that means per
person.
• Per capita is used when comparing a certain economic metric to a
population.
• The most common instances of per capita are gross domestic product
(GDP) per capita and income per capita.
• Per capita information provides more granular data than just aggregate
information. It is often used as an apples-to-apples comparison between
countries with different population sizes.
• Per capita information is often contrasted with median information, which
provides a clearer picture as it considers outliers.

Here are some key points to remember about per capita income:

• It's an average: Like any average, per capita income doesn't capture the
individual income variations within the area. A few extremely wealthy
individuals can skew the average, masking the reality of many who might
have significantly lower incomes.

Note By Nirajan Raut Sir | Miras Academy

 • It reflects the standard of living: While not perfect, per capita income can
serve as a broad indicator of the average standard of living in an area.
Higher per capita income generally suggests a better standard of living with
access to more resources and goods.

• Limitations: Per capita income has limitations and shouldn't be solely

relied upon for comprehensive economic analysis. It doesn't account for
factors like:

o Income distribution: Whether wealth is concentrated in the hands of

few or distributed more evenly among the population.

o Cost of living: Differences in purchasing power across regions.

o Poverty and inequality: The presence of poverty and significant

income inequality within the area.

Despite these limitations, per capita income remains a valuable metric for
comparing the relative wealth of different areas and gauging overall economic
prosperity. It's important to interpret it cautiously and consider other factors for a
more nuanced understanding of the economic landscape.

Features of Per Capita Income:

1. Measure of Average Income:

• Per capita income provides an average of the income earned by all

individuals in a specific area. It offers a general idea of the economic well-
being of the population.

2. Indicator of Standard of Living:

• Higher per capita income generally suggests a higher standard of living for
the population. It implies greater access to resources, goods, and services.
However, it's not a perfect measure as it doesn't account for factors like
income distribution and cost of living.

3. Comparison Tool:

• Per capita income allows for comparison of the economic wealth of

different areas like countries, regions, or cities. It helps identify relative
differences in economic prosperity.

Note By Nirajan Raut Sir | Miras Academy

4. Ease of Calculation:

• Per capita income is relatively easy to calculate by dividing the total

income of an area by its population. This makes it readily accessible and
widely used for economic analysis.

Why per capita income is considered significant: (Importance)

1. Standard of Living:
Per capita income is often used as a proxy for the standard of living in a
particular area or country. A higher per capita income generally indicates
that, on average, individuals have more resources and can afford a better
quality of life, including access to education, healthcare, housing, and other
essential goods and services.

2. Economic Development:
Per capita income is a useful measure for assessing the level of economic
development. Countries with higher per capita incomes are generally more
developed and have better infrastructure, technology, and overall economic
prosperity.

3. International Comparisons:
Per capita income allows for comparisons between different countries or
regions. It helps policymakers, economists, and analysts understand how
well an economy is performing relative to others and can provide insights
into global economic disparities.

4. Poverty Assessment:
While per capita income does not capture income distribution disparities,
it is still a valuable tool for assessing poverty levels. Lower per capita
income may indicate a higher incidence of poverty in a given area,
prompting the need for targeted poverty alleviation programs.

5. Investment Decisions:
Investors often use per capita income as one of the factors when making
decisions about where to invest. Higher per capita income can suggest a
more favourable environment for businesses and potentially higher
consumer spending.

Note By Nirajan Raut Sir | Miras Academy

 6. Policy Formulation:
Governments use per capita income data to formulate economic policies.
Understanding the average income levels helps policymakers address
issues related to poverty, unemployment, and social inequality. It can guide
the development of strategies to improve overall economic conditions.

7. Social and Economic Planning:

Planners use per capita income data for long-term social and economic
planning. It helps in identifying areas that require attention, such as
education and healthcare infrastructure, and aids in the allocation of
resources for sustainable development.

It's important to note that per capita income has its limitations, and it doesn't
provide a complete picture of economic well-being. It does not consider income
distribution within a population, and disparities among individuals may exist even
in regions with high per capita incomes. Therefore, it is often used in conjunction
with other indicators for a more comprehensive assessment of an economy.

Measurement of Per Capita Income in Nepal:

In Nepal GDP Per Capita, GNI Per Capita, and GNDI Per Capita are measured
and GNI Per Capita is considered as Per Capita Income.
GDP
Per Capita GDP =
Population

GNI
Per Capita GNI =
Population

GNDI
Per Capita GNDI = Population

Human Development Index

What Is the Human Development Index (HDI)?

The Human Development Index (HDI) is a statistical composite index that

measures the average achievements of a country in three key dimensions of
human development:

1. A long and healthy life: Measured by life expectancy at birth.

Note By Nirajan Raut Sir | Miras Academy

2. Knowledge: Measured by mean years of schooling for adults aged 25 and over
and expected years of schooling for children of school-entering age.

3. A decent standard of living: Measured by Gross National Income (GNI) per

capita adjusted for purchasing power parity (PPP).

The HDI was developed by the United Nations Development Programme

(UNDP) in 1990 as a complement to traditional economic indicators like Gross
Domestic Product (GDP). It aimed to move the focus from purely economic
growth to the well-being and capabilities of people.

Here are some key points about the HDI:

• The United Nations Development Programme (UNDP) regularly publishes

HDI rankings for countries worldwide.

• Range: The HDI ranges from 0 to 1, with higher values indicating higher
levels of human development.

• Categories: Countries are classified into four tiers based on their HDI
score:

o Very high human development (0.800 - 1.000)

o High human development (0.700 - 0.799)

o Medium human development (0.550 - 0.699)

o Low human development (below 0.550)

• Strengths: The HDI is valuable because it:

o Considers multiple dimensions of human well-being, not just

economic factors.

o Provides a basis for comparison between countries at different stages

of development.

o Can be used to track progress towards achieving the Sustainable

Development Goals (SDGs).

• Limitations: The HDI has limitations to consider:

o It doesn't capture inequalities within a country.

Note By Nirajan Raut Sir | Miras Academy

 o It relies on imperfect data from various sources.

o It may not fully reflect the complexities of human development.

Despite its limitations, the HDI remains a widely used and influential tool for
assessing and comparing human development across countries. It helps draw
attention to issues of poverty, inequality, and lack of access to basic necessities,
informing policy decisions and development strategies aimed at improving
human well-being globally.

Concept:

The Human Development Index (HDI) is a statistic developed and compiled by

the United Nations since 1990 to measure various countries’ levels of social and
economic development.

It is composed of four principal areas of interest:

• mean years of schooling,

• expected years of schooling,
• life expectancy at birth, and
• gross national income (GNI) per capita.

This index is a tool used to follow changes in development levels over time and
compare the development levels of different countries.

Highlights

• The Human Development Index (HDI) is a measurement system used by

the United Nations to evaluate the level of individual human development
in each country.

• It was introduced by the U.N. in 1990.

• The HDI was created to emphasize that people and their capabilities should
be the ultimate criteria for assessing the development of a country, not
economic growth alone.

• The HDI uses components such as average annual income and educational
expectations to rank and compare countries.

• The HDI has been criticized by social advocates for not representing a
broad-enough measure of quality of life and by economists for providing

Note By Nirajan Raut Sir | Miras Academy

 little additional useful information beyond simpler measures of the
economic standard of living.

The top 25 countries by the latest HDI rankings (as of 2023) include:

Rank Country HDI Score

1 Switzerland 0.962
2 Norway 0.961
3 Iceland 0.959
4 Hong Kong 0.952
5 Australia 0.951

What Are the Indicators Used in the Human Development Index (HDI)?

The Human Development Index (HDI) measures each country’s social and
economic development by focusing on the following four factors: mean years of
schooling, expected years of schooling, life expectancy at birth, and gross
national income (GNI) per capita.

Is a High HDI Good or Bad?

The higher the HDI, the better. A high HDI essentially means that the country in
question offers a generally high standard of living, with decent healthcare,
education, and opportunities to earn money.

Measurement of HDI:

The Human Development Index (HDI) is a composite statistic developed by the

United Nations to measure and rank countries' average achievements in three
basic dimensions of human development. The three dimensions are:
1. Health (Life Expectancy): Measured by life expectancy at birth.

2. Education (Mean and Expected Years of Schooling): Measured by the

average number of years of education received by people aged 25 years
and older, and the expected number of years of schooling for children
entering school.

3. Standard of Living (Gross National Income per Capita): Measured by

the gross national income (GNI) per capita, adjusted for purchasing power
parity (PPP).

Note By Nirajan Raut Sir | Miras Academy

The formula for calculating the Human Development Index (HDI) involves
normalizing and combining the scores from each of these dimensions. Here is the
formula:
Formula: HDI = (Life Expectancy Index × Education Index × GNI per Capita Index)1/3

Where,
Actual Life Expectancy−Minimum Life Expectancy
Life Expectancy Index =
𝐌𝐚𝐱𝐢𝐦𝐮𝐦 𝐋𝐢𝐟𝐞 𝐄𝐱𝐩𝐞𝐜𝐭𝐚𝐧𝐜𝐲−𝐌𝐢𝐧𝐢𝐦𝐮𝐦 𝐋𝐢𝐟𝐞 𝐄𝐱𝐩𝐞𝐜𝐭𝐚𝐧𝐜𝐲

Indicators of Human Development:

Human Development Index rank

• Nepal has been on the 143rd rank in the Human Development Index.

Nepal has made significant strides in human development in recent decades, but
challenges remain. Let's explore some key indicators of human development in
the context of Nepal:

1. Life Expectancy at Birth:

• Positive Trend: As you mentioned, life expectancy at birth in Nepal has

risen steadily, reaching 68.45 years in 2021 (Statista). This represents a
significant improvement from 65.3 years in 2000 (WHO).

• Disparities: However, disparities exist within the country. Women

generally live longer than men (70.36 years vs. 66.57 years in 2021) and
urban residents tend to outlive those in rural areas.

2. Education:

• Progress: Nepal has achieved remarkable progress in education. Adult

literacy rate has increased from 49.7% in 2001 to 65.9% in 2018 (World
Bank). The net enrolment rate in primary education is over 95%
(UNESCO).

• Challenges: Quality of education, particularly in rural areas, remains a

concern. Gender disparities persist, with lower enrolment and completion
rates for girls compared to boys.

Note By Nirajan Raut Sir | Miras Academy

3. Health:

• Improvements: Infant mortality rate has declined significantly, from 73

deaths per 1,000 live births in 2000 to 30 in 2020 (World Bank). Access to
maternal healthcare services has also improved.

• Obstacles: Neonatal mortality and under-five mortality rates remain

high. Access to quality healthcare in remote areas is limited.

4. Standard of Living:

• Income Growth: Nepal's GNI per capita (PPP) has increased

steadily, reaching $2,748 in 2021 (World Bank). Poverty rates have
declined, although significant disparities remain between regions and
social groups.

• Inequality: Access to basic necessities like clean water and sanitation

varies greatly, particularly in rural areas.

5. Gender Equality:

• Limited Progress: Nepal has made some strides in gender equality, such as
increasing female representation in parliament. However, gender-based
violence, discriminatory social norms, and limited economic opportunities
for women remain major challenges.

Overall:

Nepal has made significant progress in human development, but inequalities and
obstacles persist. Addressing these issues requires continued investment in
healthcare, education, infrastructure, and social inclusion policies. By focusing
on these areas, Nepal can continue to improve the well-being of its citizens and
achieve its full human development potential.

Additional Information:

• Nepal ranked 143rd in the 2021 Human Development Index (HDI) report
by the United Nations Development Programme (UNDP).

• The HDI is a composite index that considers life expectancy, mean years
of schooling, and GNI per capita.

Note By Nirajan Raut Sir | Miras Academy

 • Nepal's HDI score has steadily increased over the past few
decades, reflecting the country's progress in human development.

Importance of HDI:

the Human Development Index (HDI) are multifaceted and range across various
aspects of human well-being. Here are some key areas where the HDI has a
significant impact:

1. Measuring Progress and Setting Goals:

• The HDI provides a quantifiable measure of human development, allowing

countries to track their progress over time and identify areas where they
need to focus their efforts. This data is crucial for setting national and
international development goals, such as the Sustainable Development
Goals (SDGs).

2. Raising Awareness and Advocacy:

• The HDI draws attention to disparities in human development both within

and between countries. This can help raise awareness of critical issues such
as poverty, inequality, and lack of access to basic necessities. By

Note By Nirajan Raut Sir | Miras Academy

 highlighting these challenges, the HDI can advocate for increased
investment in development programs and policies aimed at improving
human well-being for all.

3. Informing Policy Decisions:

• The HDI data can be used by governments and international organizations

to inform their policy decisions. By identifying areas where a country is
lagging behind, the HDI can help guide the allocation of resources and the
development of targeted interventions. For example, a country with a low
life expectancy might prioritize investments in healthcare infrastructure
and maternal health services.

4. Promoting Global Cooperation:

• The HDI can foster international cooperation and collaboration on

development issues. By providing a common metric for measuring
progress, the HDI can help countries track their progress towards shared
goals and identify areas where they can learn from each other's successes
and challenges. HDI promotes global cooperation.

5. Holding Governments Accountable:

• The HDI can be used to hold governments accountable for their

commitment to improving human development. By tracking a country's
HDI score over time, citizens and civil society organizations can monitor
the government's progress and demand action if necessary.

Problems in the improvement of HDI:

While the Human Development Index (HDI) has been instrumental in

highlighting human well-being and progress, it faces challenges that can hinder
its effectiveness in driving further improvement. Here are some key problems that
impede the improvement of the HDI:

1. Data Limitations:

• Quality and Availability: The HDI relies on data from various sources,
which can vary in quality and availability, particularly in developing
countries. This can lead to inaccuracies in the index and make comparisons
between countries less reliable.

Note By Nirajan Raut Sir | Miras Academy

 • Timeliness: Data collection and analysis can be time-consuming, resulting
in outdated HDI scores that don't reflect recent developments.

2. Focus on Averages:

• Mask Inequalities: The HDI provides an average score for a country,

masking significant inequalities within its population. For example, a high
average HDI score might coexist with pockets of severe poverty and
limited access to basic necessities for marginalized groups.

• Neglects Vulnerability: The HDI primarily focuses on current

achievements but doesn't fully capture vulnerabilities or potential setbacks
due to factors like environmental disasters, conflicts, or economic shocks.

3. Limited Scope:

• Multifaceted Development: The HDI only considers three dimensions:

health, knowledge, and living standards. While crucial, it doesn't
encompass all aspects of human well-being, such as environmental
sustainability, gender equality, social inclusion, and political rights.

• Subjectivity in Weighting: The HDI assigns equal weight to each

dimension, which might not reflect the relative importance of each factor
in different contexts.

4. Misuse and Oversimplification:

• Policy Misdirection: The HDI can be misconstrued as a singular measure

of development, leading to policies focused solely on increasing the score
rather than addressing underlying issues.

• Oversimplification of Progress: The HDI score can be oversimplified,

neglecting the complex factors and nuances that contribute to human
development.

Addressing these problems requires:

• Investing in data quality and collection: Ensuring accurate and timely data
gathering, particularly in developing countries.

• Developing disaggregated HDI measures: Providing breakdowns by

region, gender, income group, etc., to reveal inequalities.

Note By Nirajan Raut Sir | Miras Academy

 • Expanding the scope of the HDI: Incorporating additional dimensions like
environmental sustainability and social inclusion.

• Using the HDI as a tool, not a goal: Recognizing the HDI's limitations and
using it alongside other indicators to inform comprehensive development
strategies.

By acknowledging and addressing these challenges, we can make the HDI a more
effective tool for driving progress towards a more equitable and sustainable future
for all.

Nepal's Human Development Index (HDI) Report

Key Points:

The latest Human Development Index (HDI) report for Nepal, released in 2022,
paints a mixed picture of progress and challenges. Here are some key points:

Ranking and Score:

• Nepal ranked 143rd out of 191 countries in the 2021 HDI report.

• Its HDI score was 0.602, placing it in the medium human

development category.

• While Nepal has improved its ranking slightly from 144th in 2020, its HDI
score has marginally declined, reflecting the continued impact of the
COVID-19 pandemic.

Positive Progress:

• Nepal has made significant strides in life expectancy at birth, which

increased from 58.1 years in 1990 to 68.5 years in 2021.

• Access to education has also improved, with adult literacy rates rising from
49.7% in 2001 to 65.9% in 2018.

• GNI per capita (PPP) has grown steadily, reaching $2,748 in 2021.

Remaining Challenges:

• Nepal still faces significant disparities in access to quality

healthcare and education, particularly in rural areas.

Note By Nirajan Raut Sir | Miras Academy

 • Gender inequality remains a major concern, with lower enrollment and
completion rates for girls in education and higher rates of gender-based
violence.

• Poverty and inequality persist, with significant differences in living

standards between different regions and social groups.

• Climate change poses additional threats to Nepal's

development, potentially impacting resource availability, food
security, and livelihoods.

Conclusion:

Nepal has made commendable progress in human development despite facing

various challenges. Continued efforts are needed to address inequality, improve
access to basic necessities, and promote sustainable development to further boost
its HDI and ensure a better future for all Nepalese citizens.

Nepal's Presence in Terms of the Human Development Index (HDI):

Nepal's presence in terms of the HDI presents a mixed picture of progress and
challenges:

Positive Aspects:

• Steady Improvement: Nepal has shown steady improvement in its HDI

ranking over the past two decades, moving from 151st in 2000 to 143rd in
2021.

• Significant Gains in Life Expectancy: Life expectancy at birth has

increased significantly, reaching 68.5 years in 2021 compared to 58.1 years
in 1990.

• Education Progress: Significant advancement in access to education, with

adult literacy rates rising from 49.7% in 2001 to 65.9% in 2018.

• Economic Growth: GNI per capita (PPP) has grown steadily, reaching
$2,748 in 2021.

Note By Nirajan Raut Sir | Miras Academy

Challenges and Areas for Improvement:

• Lower Ranking: Despite progress, Nepal's HDI score of 0.602 in 2021 is

still in the medium human development category, highlighting remaining
challenges.

• Disparities and Inequalities: Significant disparities exist within the country

regarding access to quality healthcare, education, and living standards,
particularly between urban and rural areas and different social groups.

• Limited HDI Dimensions: The HDI only captures three dimensions

(health, knowledge, and living standards), neglecting crucial aspects like
environmental sustainability, gender equality, and social inclusion.

• Limited Progress on Gender Equality: Gender inequality remains a major

concern, with lower enrollment and completion rates for girls in education
and higher rates of gender-based violence.

• Challenges Posed by Poverty and Climate Change: Persistent poverty and

inequality along with the emerging threats of climate change pose hurdles
to further development.

Overall:

While Nepal has made commendable progress in some areas, significant

challenges remain in achieving higher levels of human development. Addressing
these challenges requires continued efforts in:

• Promoting inclusive development: Ensuring equitable access to quality

healthcare, education, and basic necessities for all.

• Investing in gender equality: Empowering women and girls through

education, economic opportunities, and combating gender-based violence.

• Promoting sustainable development: Addressing the impacts of climate

change and implementing environmentally friendly practices.

• Strengthening governance and institutions: Combatting corruption,

improving policy implementation, and promoting good governance.

By addressing these challenges and building on its successes, Nepal can continue
to improve its presence in terms of the HDI and create a more just and prosperous
future for all its citizens.

Note By Nirajan Raut Sir | Miras Academy

Investment

• An investment is an asset or item acquired with the goal of generating

income or appreciation.
• Appreciation refers to an increase in the value of an asset over time.
• When an individual purchases a good as an investment, the intent is not to
consume the good but rather to use it in the future to create wealth.
• An investment always concerns the outlay (expenditure/payment) of some
resource today—time, effort, money, or an asset—in hopes of a greater
payoff in the future than what was originally put in.
• For example, an investor may purchase a monetary asset now with the idea
that the asset will provide income in the future or will later be sold at a
higher price for a profit.

Highlights:

• An investment involves putting capital to use today in order to increase its

value over time.

• An investment requires putting capital to work, in the form of time, money,

effort, etc., in hopes of a greater payoff in the future than what was
originally put in.

• An investment can refer to any medium or mechanism used for generating

future income, including bonds, stocks, real estate property, or alternative
investments.

• Investments usually do not come with guarantees of appreciation; it is

possible to end up with less money than with what you started.

• Investments can be diversified to reduce risk, though this may reduce the
amount of earning potential.

• Simply, investment refers to the act or process of investing money, time,

and effort to acquire an asset, make a profit, or generate income.
• In economics, investment is defined as part of income devoted to those
goods, which are used for further production of other goods or earning
income.

Note By Nirajan Raut Sir | Miras Academy

 • The act of spending money to increase production and productivity is
known as investment.
• Expenses made to increase the stock of capital assets are known as
investments. Capital assets include machines, tools, equipment, and so on.
• Thus, investment is that part of income spent on capital goods to increase
output, employment, and income.
• According to Keynes, "Investment means the current addition to the value
of the capital equipment which has resulted from productive activity of the
period."

Investment Function

• Functional relationship between investment and it's various determinants

is known as investment function.
• Classical economists argue that investment is the negative function of rate
of interest.
• It can be written as; I= f(i)
• Here, I= Investment, f= Function and i= interest rate
• It means that the higher the interest, the lower the investment, and vice
versa.
• According to Keynes, investment is a function of the rate of interest (i) and
marginal efficiency of capital (MEC). It can be written as: I= f (I, MEC)

Importance of Investments:

1. Wealth Accumulation:

• Investing allows individuals to grow their wealth over time.

• By putting money into various assets such as stocks, bonds, real
estate, and other investment vehicles, individuals have the potential
to earn returns that outpace inflation, leading to increased wealth
over the long term.

2. Financial Goals:

Note By Nirajan Raut Sir | Miras Academy

 • Investments help individuals achieve their financial goals, whether
it's saving for retirement, purchasing a home, funding education, or
starting a business.
• The power of compounding enables individuals to harness the
growth of their investments over an extended period.

3. Risk Management:

• Diversifying investments across different asset classes can help

manage risk.
• A well-balanced investment portfolio can mitigate the impact of
poor performance in one asset class by the positive performance of
others.

4. Retirement Planning:

• Investment is a crucial component of retirement planning.

• Building a retirement nest egg through investments ensures that
individuals can maintain their desired lifestyle even after they stop
working.

5. Economic Growth:

• Societal investment, including government spending on

infrastructure, research and development, and private sector
investments, contributes to economic growth.
• This growth can result in job creation, increased productivity, and a
higher standard of living for the population.

6. Innovation and Development:

• Investments in research and development foster innovation and

technological advancements.
• This, in turn, leads to the creation of new industries, job
opportunities, and improvements in the overall quality of life.

7. Education and Skill Development:

• Investments in education and skill development are essential for the

personal and professional growth of individuals.

Note By Nirajan Raut Sir | Miras Academy

 • These investments contribute to a skilled and knowledgeable
workforce, which is crucial for economic progress.

8. Hedging against Inflation:

• Investing in assets that typically outpace inflation helps to preserve

the purchasing power of money.
• While inflation erodes the real value of currency, certain investments
have the potential to provide returns that surpass inflation rates.

9. Passive Income Generation:

• Some investments, such as dividend-paying stocks or rental

properties, can generate passive income.
• This income can be especially beneficial for individuals seeking
financial independence or looking to supplement their regular
income.

10.Social and Environmental Impact:

• Ethical and socially responsible investing allows individuals to align

their investments with their values.
• Investing in companies and projects that promote social and
environmental sustainability can contribute to positive change.

Types of Investment:

1. Gross and Net Investment

• Gross investment: The total expenses made on new capital goods during a
year are known as gross investment. It includes depreciation value.

Gross investment (GI)= Net investment + Depreciation

• Net Investment: Net investment is obtained if depreciation is deducted

from gross investment.

Net Investment = Gross Investment- Depreciation

Note By Nirajan Raut Sir | Miras Academy

2. Induced and Autonomous Investment

• Induced investment: Induced investment changes with the changes in

national income. When national income increases induced investment also
increases and vice versa.
• Autonomous investment: Autonomous investment is not affected by the
change in income. It is influenced by population growth, research,
development, and so on. Such investments are mostly made by the
government.

3. Ex-ante and Ex-post Investment

• Ex-ante investment refers to the amount of money that firms plan to invest
at different levels of income in the economy.
• It is also known as planned investment. While ex-post investment refers to
the realized or actual investment in an economy during a year.

4. Private and Public Investment

• The investment made by private individuals, private investors, or

businessmen with the motive of earning money is known as private
investment. It depends on the interest rate and MEC.
• The investment made by the government and its various bodies with the
motive of increasing public service and social utility is known as
government investment.

Marginal Efficiency of Capital

• Irving Fisher had introduced the concept of MEC as the 'rate of return
over cost'. Later this concept was fully developed by J.M Keynes.
• The expected rate of return from the purchase of capital asset is called
MEC.

Note By Nirajan Raut Sir | Miras Academy

 • Keynes define MEC as the rate of discount which would make the
present value of expected future income from fixed capital assets equal
to the current supply price of the asset.
• The main determinants of MEC are as follows.
a) Prospective Yield: Prospective yield is what an entrepreneur expects to obtain
from the output of its capital asset during its lifetime.
b) Supply Price: The supply price of the new capital asset is the cost of producing
a new asset of the same kind, not the supply price of an existing asset. It is
also known as replacement cost.

MEC can be expressed as:

𝑄 𝑄2 𝑄
Sp =(1+𝑟)¹
1
+ (1+𝑟)²
+… (1+𝑟)𝑛
𝑛

Sp= Supply price of capital

Q1, Q2... Qn = Prospective yields in 1, 2, and n years

r = MEC or the rate of discount

➢ MEC curve slopes downward because

a) As the volume of investment increases, expected annual returns from capital

assets fall due to the operation of the law of diminishing returns

b) As the volume of investment increases, the supply price of capital rises due to
increase in demand for machineries and equipment.

➢ If, MEC>i, Project is efficient and profitable

MEC=i, Project is neither inefficient nor too profitable
MEC<i, Project is inefficient and unprofitable

Determinants of Investment

A. Short run

o Expected demand.
o Cost and prices
o Change in income.
o Propensity to consume.
o Government policy.

Note By Nirajan Raut Sir | Miras Academy

B. Long-run Factors

o Growth of population
o Technological progress
o New product
o Rate of interest
o Development of infrastructure

Consumption:

• Consumption, in economics, refers to the act of using goods and services

to satisfy wants and needs. This can involve:

o Direct use: Eating a meal, wearing clothes, driving a car.

o Indirect use: Using electricity to power appliances, utilizing the

internet to access information.

o Intangible services: Attending a concert, receiving

healthcare, enjoying entertainment.

• Consumption is distinct from investment, which involves using resources

to create future income or benefits. For example, buying a house to live in
is consumption, while buying a house to rent out is investment.

Here are some key points to remember about consumption:

• Individual vs. aggregate:

o Consumption can be analyzed at the individual level

(household spending) or the aggregate level (national or
regional spending).

• Importance in economics:

o Consumption is a key component of Gross Domestic Product

(GDP), which measures the overall economic activity of a
country.

• Factors influencing consumption:

o Consumer income, prices, expectations, interest rates, and access to

credit are some factors that influence consumption decisions.

Note By Nirajan Raut Sir | Miras Academy

 • Types of consumption:

o Consumption can be categorized as essential

(food, shelter), discretionary (electronics, travel), or luxury
(designer goods, yachts).

• Impact on environment and society:

o Consumption patterns can have significant environmental and social

impacts, such as resource depletion, pollution, and inequality.

Features / Characteristics

Consumption, the utilization of goods and services to satisfy needs and wants,
exhibits several distinct features that influence economic activity and individual
behavior. Here's a closer look at some key characteristics:

1. Individual vs. Aggregate:

• Individual: Individual consumption patterns are influenced by factors like

income, preferences, family size, and lifestyle choices. These choices
affect individual budget allocation and spending habits.

• Aggregate: Aggregate consumption, typically measured by national or

regional spending, reflects broader economic trends like income
levels, inflation, and consumer confidence. It's a crucial component of
Gross Domestic Product (GDP), impacting economic growth and stability.

2. Dependence on Income:

• Consumption generally increases with rising income as individuals have

more resources to fulfill more wants and needs.

• However, the marginal propensity to consume (MPC), the proportion of

additional income spent, often declines as income rises. This means people
tend to save a larger portion of their income with higher earnings.

3. Price Sensitivity:

• Consumers are generally price-sensitive, adjusting their consumption

patterns based on relative prices of goods and services.

Note By Nirajan Raut Sir | Miras Academy

 • When prices rise, they might substitute cheaper alternatives, reduce
consumption, or delay purchases. Conversely, falling prices can encourage
increased consumption.

4. Role of Expectations:

• Consumer expectations about future income, job security, and economic

conditions can significantly influence consumption decisions.

• Positive expectations might lead to increased spending, while negative

ones might induce caution and saving.

5. Influence of Credit:

• Access to credit allows consumers to purchase goods and services beyond

their current income, impacting consumption levels.

• However, excessive reliance on credit can lead to debt and financial

strain, affecting future consumption possibilities.

6. Social and Cultural Impact:

• Consumption is influenced by social and cultural factors, including

trends, advertising, and peer pressure.

• These factors shape individual preferences, leading to trends in

consumption patterns and brand choices.

7. Environmental Dimension:

• Consumption patterns have a significant environmental impact through

resource use, production processes, and waste generation.

• Growing awareness of sustainability is shaping consumer preferences

towards eco-friendly products and responsible consumption practices.

8. Volatility and Uncertainty:

• Consumption is often volatile and subject to changes in economic

conditions, policy decisions, and unexpected events.

• These fluctuations can create economic instability and require adjustments

in production and investment strategies.

Note By Nirajan Raut Sir | Miras Academy

Determinants of Consumption:

Several factors influence and determine consumption, both from individual and
macroeconomic perspectives. Here's a breakdown of some key determinants:

Individual Level:

• Disposable income: As the fundamental resource for spending, disposable

income (income after taxes and other deductions) has the most direct
impact on consumption. Generally, as income rises, consumption
increases, but not proportionally (explained by the marginal propensity to
consume).

• Preferences and tastes: Individual preferences, shaped by factors like

culture, social status, and advertising, influence what people choose to
consume.

• Expectations: Consumer expectations about future income, job

security, and economic conditions can significantly impact present
consumption. Optimistic expectations might lead to increased
spending, while pessimistic ones might encourage saving.

• Age and family structure: Age and family composition influence

consumption needs and patterns. For example, young adults might spend
more on entertainment, while families with children have different
consumption priorities.

• Debt and access to credit: Availability of credit allows individuals to

consume beyond their current income, impacting spending
levels. However, excessive debt can lead to financial strain and limit future
consumption possibilities.

Macroeconomic Level:

• Interest rates: Interest rates influence borrowing costs and savings

incentives. Lower interest rates make borrowing cheaper, potentially
stimulating consumption. Conversely, higher interest rates incentivize
saving and might reduce consumption.

• Inflation: Inflation affects the purchasing power of income, effectively

reducing the real value of what consumers can buy. Anticipated inflation
can lead to increased spending ("buy now before prices go up").

Note By Nirajan Raut Sir | Miras Academy

 • Taxes: Taxes directly reduce disposable income, impacting available
resources for consumption. Changes in tax policy can influence household
spending patterns.

• Government spending: Government spending on goods and services

directly contributes to aggregate consumption. Additionally, it can
indirectly affect private consumption through changes in income levels and
economic confidence.

• Availability of goods and services: The availability and affordability of

desired goods and services directly influence consumption
patterns. Supply chain disruptions or price changes can significantly
impact what people can and are willing to consume.

Other factors:

• Social and cultural factors: Trends, advertising, and peer pressure can
shape consumer preferences and influence consumption patterns.

• Environmental awareness: Growing concerns about sustainability are

shaping consumer choices towards eco-friendly products and responsible
consumption practices.

Investment

In economics, investment refers to the process of allocating resources to create or

expand productive capacity. This can involve a variety of activities, such as:

• Building new factories or machines

• Developing new technologies or products

• Exploring for and extracting natural resources

• Investing in education and training

• Spending on research and development

• In Keynesian terminology, investment refers to real investment which adds

to capital stock.

Note By Nirajan Raut Sir | Miras Academy

 • It leads to increase in the levels of income and employment by increasing
the production and purchase of capital goods.

• Investment thus includes new plant and equipment, construction of public

works like dams, roads, buildings, etc., net foreign investment, inventories
and stocks and shares of new companies.

• In the words of Joan Robinson, “By investment is meant an addition to

capital, such as occurs when a new house is built or a new factory is built.
In ordinary parlance, financial investment such as buying shares, stocks,
bonds and securities which already exist in stock market may be popular
as investment. But this is not real investment in economic sense because it
is simply a transfer of existing assets.

• Hence this is called financial investment which does not affect aggregate
spending, so it is refered as ownership transfer in economics.

Types of Investment

Gross Investment Vs Net Investment

Both gross and net investment are crucial metrics in understanding an economy's
growth and productivity, but they paint different pictures. Here's the breakdown:

Gross Investment:

• Total expenditure on capital goods over a period: Think of it as the initial

spending on new machinery, buildings, infrastructure, etc., without
considering any wear and tear.

• Ignores depreciation: It does not account for the natural decline in value of
these assets over time as they're used.

• Focuses on short-term spending: Offers a glimpse into recent activity and

potential future capacity.

Net Investment:

• Gross investment minus depreciation: Takes into account replacement of

worn-out assets to maintain or expand the existing capital stock.

• Reflects actual contribution to growth: It shows the net increase in

productive capacity after accounting for wear and tear.

Note By Nirajan Raut Sir | Miras Academy

 • Focuses on long-term growth: Provides a better understanding of
the economy's sustainable expansion potential.

Analogy:

Imagine you buy a new machine for $1000. Its gross investment is
$1000. However, over time, the machine wears out and loses value.
After a year, its value might be $800 due to depreciation. The net
investment would then be $1000 (gross) - $200 (depreciation) =
$800.

Key Takeaways:

• Gross investment: Useful for short-term analysis of spending and potential

future capacity.

• Net investment: More accurate indicator of long-term economic growth

and expansion potential.

• Both metrics are important, and their relationship tells us how much
investment is actually contributing to growth.

Real Investment Vs Financial Investment

When it comes to investing, the options can seem overwhelming. Two broad
categories, real and financial investments, offer distinct paths to achieve your
financial goals. Understanding their differences can help you make informed
decisions about where to put your money.

Real Investments:

• Tangible assets: Focus on ownership of physical properties like land,

buildings, machinery, or even precious metals.

• Direct returns: Generate income through rent, lease agreements, resource

extraction, or appreciation in asset value.

• Higher entry barrier: Often require larger initial investments and active
management, like property maintenance or business operations.

• Potential for higher returns: Can offer significant capital appreciation and
long-term wealth creation, particularly through land or infrastructure
assets.

Note By Nirajan Raut Sir | Miras Academy

 • Exposure to market and economic fluctuations: Values can be affected by
real estate cycles, commodity prices, and natural disasters.

• Examples: Buying rental properties, owning a business, investing in

farmland, precious metals.

Financial Investments:

• Intangible assets: Represent claims on the value of other entities, like

corporations, government bonds, or financial instruments.

• Indirect returns: Generate income through dividends, interest payments, or

capital appreciation from underlying assets.

• Lower entry barrier: Require less initial capital and easier diversification
through mutual funds or ETFs.

• Potentially lower returns: Generally offer lower capital appreciation

compared to real estate, but with faster liquidity and lower risk.

• Exposure to market and economic fluctuations: Values can be impacted by

stock market crashes, interest rate changes, and economic recessions.

• Examples: Stocks, bonds, mutual funds, ETFs, options, commodities.

Autonomous investment vs Induced Investment

In economics, understanding the two types of investment, autonomous

investment and induced investment, is crucial to analyzing economic cycles and
growth. Here's a breakdown of their differences:

Autonomous Investment:

• Independent of income levels: This type of investment is determined

by factors outside of current economic activity, such as:

o Technological advancements: New discoveries and innovations can

spur investments in production capabilities.

o Government spending: Infrastructure projects, research grants, and

public investments can be independent of current income levels.

o Changes in expectations: Optimistic economic forecasts can

motivate businesses to invest regardless of current income.

Note By Nirajan Raut Sir | Miras Academy

 • Constant level of investment: Autonomous investment remains
relatively unchanging over time, regardless of fluctuations in economic
output or income levels.

• Examples: Building a new factory due to a technological

breakthrough, government investment in renewable energy, a company
expanding its facilities based on expected future demand.

Induced Investment:

• Reacts to changes in income: This type of investment directly responds to

increases or decreases in economic activity:

o Higher income: When demand for goods and services

rises, businesses invest in expanding production capacity to meet
that demand.

o Lower income: During economic downturns, businesses might

reduce investments due to lower demand and profitability.

o Profit expectations: Businesses invest more when they expect future

profits to be high, which is often linked to higher income levels.

• Varies with economic fluctuations: Induced investment is not constant and

changes as economic activity rises and falls.

o Accelerator effect: Increases in income can lead to disproportionate

increases in investment, as businesses not only replace depreciated
assets but also expand capacity to capitalize on the growing demand.

• Examples: A restaurant investing in additional tables and chairs after

increased customer traffic, a manufacturer buying new machinery to meet
higher product orders, businesses cutting back on expansion plans during
a recession.

Government investment vs Private investment

Government and private investments are the two driving forces behind a nation's
economic landscape. While both contribute to growth and development, they
differ in their motives, methods, and impacts. Let's delve into their distinctive
features:

Government Investment:

Note By Nirajan Raut Sir | Miras Academy

 • Focus: Public infrastructure, education, research, social
welfare, environmental protection, defense.

• Motives: Addressing market failures, providing essential

services, fostering long-term growth, promoting social equity and security.

• Funding: Taxes, borrowing, issuance of bonds.

• Benefits:

o Positive externalities: Public infrastructure like roads and bridges

benefit everyone, even those who don't directly pay for them.

o Long-term growth: Investment in education and research can

stimulate innovation and productivity gains.

o Social safety net: Investments in healthcare and social programs can

improve the well-being of citizens.

Private Investment:

• Focus: Profitability, maximizing shareholder value.

• Motives: Generating returns for investors, expanding market

share, developing new products and services.

• Funding: Private savings, bank loans, venture capital, equity markets.

• Benefits:

o Efficiency and innovation: Private businesses are often more

efficient and innovative than government agencies.

o Job creation: New businesses and expanding enterprises create

employment opportunities.

o Economic dynamism: Competition between private firms drives

innovation and productivity growth.

Individual investment vs Institutional Investment

The world of investing can be divided into two broad categories: individual
investors and institutional investors. While both share the goal of growing their
wealth, their approaches and experiences differ significantly. Let's dive into the
key distinctions:

Note By Nirajan Raut Sir | Miras Academy

Individual Investors:

• Who they are: Ordinary people investing their own money, often through
brokerage accounts or retirement plans.

• Investment size: Typically, smaller amounts, ranging from individual stock

purchases to contributions to mutual funds.

• Decision-making: Usually independent, based on personal

research, financial advisors, or online resources.

• Investment choices: Broad range of options, including

stocks, bonds, ETFs, real estate, and alternative investments.

• Fees: Can vary depending on chosen platform and investment type, but
generally higher than those for institutional investors.

• Benefits: Flexibility, control over decisions, potential for higher returns

through individual stock picks.

• Drawbacks: Limited resources and information, susceptibility to

emotional biases, potentially higher risk exposure due to smaller
diversification.

Institutional Investors:

• Who they are: Organizations managing large pools of money on behalf of

others, such as pension funds, mutual funds, hedge funds, and insurance
companies.

• Investment size: Very large sums, often reaching millions or even billions
of dollars.

• Decision-making: Professional teams of analysts and researchers using

sophisticated models and strategies.

• Investment choices: Primarily diversified portfolios with a focus on

established assets like stocks, bonds, and real estate.

• Fees: Generally lower than those for individual investors due to economies
of scale and bulk buying power.

• Benefits: Access to exclusive investment opportunities, professional

expertise, lower fees, reduced risk due to diversification.

Note By Nirajan Raut Sir | Miras Academy

 • Drawbacks: Less flexibility and control over individual investments, less
potential for outsized returns through individual stock picks.

Determinants of Investment

• Marginal Efficiency of Capital (MEC): The increase in output or

production with per unit additional increase in investment is known as
marginal efficiency of capital. The higher the MEC higher will be the
investment and lower the MEC lower will be the investment.

• Level of market interest rate: Inverse relation

• Economic policies: Investment policy, industrial policy tax policy etc

• Infrastructural development of the country

• Availability skill human resource

• Technological development and research budget of the country

• Administrative situation

• Cost of labor

• Political will of the government

Consumption

• In simple parlance consumption is the using of goods and services in

an economy, or the amount of goods and services used. In the economy,
consumption increases with increase in income and vice –versa.

• In any economy, consumption increases with increase in income and

decreases with decrease in income. But the consumption does not change
as equal to change in income.

• Thus, the mathematical relationship between consumption and income is

known as the consumption function.

Symbolically,

i.e C = f(Y)

where,

Note By Nirajan Raut Sir | Miras Academy

 C = Consumption

f = function

Y= Income

Types of Consumption Function

• Consumption function is of following two types:

o Average Propensity to Consume (APC)

o Marginal Propensity to Consume (MPC)

Average Propensity to Consume

• A ratio of total consumption to total disposable income for different

levels of disposable income It is calculated by dividing the amount of
consumption by disposable income for any given level of income"

APC=C/Y

Where, C= Consumption; Y= Income

• For example, when the disposable income of the nation is $180 and
consumption expenditure is $170, we can calculate APC as

APC= 170/180

= 0.92 or 92%

• The gross domestic consumption for year 2078/79 is 90.6% of the GDP.

Note By Nirajan Raut Sir | Miras Academy

Average Propensity to Consume

Marginal Propensity to Consume (MPC).

• The concept of marginal propensity to consume is very important is

macro. J.M. Keynes has defined marginal propensity to consume (MPC):

"As the relationship between a changes in consumption (ΔC) that resulted from
a change in disposable income (ΔY)".

Formula:

It is found out by dividing change in consumption to a given change in disposable

Income.

MPC= ΔC/ΔY

The marginal propensity to consume can be explained using the diagram below

Marginal Propensity to Consume (MPC)

Note By Nirajan Raut Sir | Miras Academy

Factors Affecting Consumption
• Availability of Social security allowance
• Interest rates
• Industrial policy
• Wage policy
• Fiscal policy
• Urbanization
• Propensity to consumption

Saving:

• In economics, saving has a broader definition than just setting aside money
for personal future use.
• It specifically refers to the portion of disposable income that is not spent
on current consumption.
• Essentially, it represents the resources that are not immediately used up,
but instead allocated for future consumption or investment.

Here's a deeper dive into the economic concept of saving:

Key Features:

• Disposable income: Saving is calculated after deducting taxes and other

mandatory payments from total income.

• Macroeconomic vs. individual: While individuals save for personal

goals, aggregate saving at the national level plays a crucial role in
economic growth and investment.

• National income identity: In macroeconomics, there's a fundamental

identity: National income = consumption + saving + net exports. This
emphasizes the role of saving in the overall economic picture.

• Investment: Saved resources are often channeled into

investments, creating new productive capacity and contributing to
economic growth.

Types of Saving:

• Autonomous Saving: Saving by individuals and institutions in banks

and financial institutions voluntarily.

Note By Nirajan Raut Sir | Miras Academy

 • Compulsory Saving: Saving in Employee Provident Fund, pension
fund, etc.
• Forced Saving: During abnormal situations like war, natural calamities,
etc
• Government Saving: Saving in government treasury.
In other ways,

• Private saving: This refers to savings done by individuals and households,

either in financial assets like bank deposits or physical assets like real
estate.

• Public saving: This occurs when the government saves, meaning its budget
has a surplus (revenue exceeds expenditure).

• National saving: This is the sum of private and public saving, representing
the total resources available for investment within a country.

Types of Saving Functions

• Saving function is of the following two types:
1. Average Propensity to Save (APS)
2. Marginal Propensity Save (MPS)

Average Propensity to Save, APS

• The average propensity to save is a relationship between total saving and
total income in a given period. It is the ratio of saving to income that shows
the portion of the income that people save.
Symbolically,
APS=S/Y
Where, S= Saving; Y= Income
• For example, when the disposable income is 180, consumption is 170, and
saving is 10, we can calculate APS as
APS= 10/180 =0.06 or 6%

Marginal Propensity to Save, MPS

• The marginal propensity to save or MPS refers to the increase in the
proportion of saving as a result of an increase in the level of income. It can
be defined as the ratio of change in savings to change in income.
Symbolically,
MPS=ΔS/ΔY
Where, ΔS= Change in saving; ΔY= Change in income
• For example, when income increased from 180 to 240, savings also
changed from 10 to 20. We can then calculate MPS as
MPS= 10/60 =0.17 or 17%

Note By Nirajan Raut Sir | Miras Academy

 • This shows that, when income increased, the proportion of savings also
increased. The savings made out of total income is 17%.

Reasons for Saving in the Economy

• To cope with difficult situations in the future
• For a better future for the children
• For developing as self-employed in future
• For easy life after retirement
• For speculative and gambling motives
• For making capital consumptions in the future
• As habit

Determinants of Saving:

Individual Level:

• Disposable income: This is the most direct determinant of saving, as it

represents the resources available after taxes and other deductions.
Generally, higher disposable income leads to more savings, but not
proportionally (explained by the marginal propensity to save).

• Preferences and tastes: Individual preferences for future consumption

versus current consumption significantly influence saving decisions.
Factors like risk tolerance, lifestyle choices, and cultural values play a role.

• Expectations: Anticipated future income, job security, and economic

conditions can significantly impact present savings. Optimistic
expectations might lead to increased savings, while pessimistic ones might
encourage present consumption.

• Age and family structure: Age and family composition influence saving
needs and patterns. Young adults might save more for future goals, while
families with children have different priorities.

• Debt and access to credit: Availability of credit allows individuals to

consume beyond their current income, impacting saving levels. However,
excessive debt can lead to financial strain and limit future saving
possibilities.

Note By Nirajan Raut Sir | Miras Academy

National Level:

• Interest rates: Interest rates influence borrowing costs and savings

incentives. Lower interest rates make borrowing cheaper, potentially
stimulating consumption and reducing saving. Conversely, higher interest
rates incentivize saving.

• Inflation: Inflation erodes the purchasing power of income, effectively

reducing the real value of what people can save. Anticipated inflation can
lead to increased saving ("buy now before prices go up").

• Taxes: Taxes directly reduce disposable income, impacting available

resources for saving. Changes in tax policy can influence household saving
patterns.

• Government spending: Government spending on goods and services

directly affects national saving. Additionally, it can indirectly affect private
saving through changes in income levels and economic confidence.

• Economic growth: Economic growth generally leads to higher income

levels, potentially increasing saving. However, income inequality can
affect how this growth translates into saving across different groups.

Other factors:

• Social and cultural factors: Trends, advertising, and peer pressure can
shape consumer preferences and influence saving decisions.

• Financial literacy: Understanding financial concepts and management

skills can empower individuals to make informed saving decisions.

Access to financial services: Availability of bank accounts, investment options,

and other financial services can facilitate saving and encourage financial
inclusion.

Inflation:

Inflation, in simple terms, is the general rise in prices of goods and services in an
economy over a period of time. It means your money buys less over time, kind of
like the opposite of getting more bang for your buck.

Note By Nirajan Raut Sir | Miras Academy

Here are some key points to understand inflation:

• Measured by price indices: The rate of inflation is usually measured

by price indices like the Consumer Price Index (CPI) or the Personal
Consumption Expenditures Price Index (PCEPI). These indices track the
average price changes of a basket of goods and services that people
typically buy.

• Loss of purchasing power: When inflation happens, each unit of currency

(like a dollar or a rupee) can buy fewer goods and services than it could
before. This is because the prices of those goods and services have gone
up.

• Different rates across goods: Inflation doesn't always affect all goods and
services equally. Prices of some things, like food and energy, can be more
volatile and fluctuate more than others.

• Causes: There are a few main causes of inflation, including:

o Increased money supply: If the government or central bank prints

too much money, it can flood the economy with cash and lead to
higher prices.

o Increased demand: If there is more demand for goods and services

than there is supply, businesses can raise prices to meet that demand.

o Increased production costs: If the cost of producing goods and

services goes up, businesses may pass those costs on to consumers
in the form of higher prices.

• Effects: Inflation can have both positive and negative effects on an

economy. A small amount of inflation can be healthy for the economy, as
it can encourage businesses to invest and create jobs. However, high
inflation can be harmful, as it can lead to economic instability and
uncertainty.

Types of Inflation:

Inflation can be categorized in various ways, depending on the specific factors

driving price increases and the timeframes involved. Here are some key types of
inflation:

Note By Nirajan Raut Sir | Miras Academy

Based on Cause:

• Demand-pull inflation: This occurs when overall demand for goods and
services exceeds the available supply, leading businesses to raise prices to
meet increased demand. This can be caused by factors like increased
government spending, wage growth exceeding productivity, or easy access
to credit.

• Cost-push inflation: This occurs when the cost of producing goods and
services increases, leading businesses to pass those higher costs on to
consumers in the form of higher prices. This can be caused by factors like
rising input costs (raw materials, energy), supply chain disruptions, or
natural disasters.

• Built-in inflation: This arises from expectations of future inflation, which

can lead workers to demand higher wages and businesses to raise prices
preemptively. This can create a self-fulfilling prophecy where inflation
becomes entrenched in the economy.

Based on Timeframe (Speed):

• Creeping inflation: This refers to a slow and steady rate of inflation,

typically below 3% per year. While it may not seem significant in the
short term, creeping inflation can erode purchasing power over time.

• Walking inflation: This describes a moderate rate of inflation, typically

around 3-10% per year. While it can be manageable, it can still impact
budgeting and long-term financial planning.

• Galloping inflation: This refers to a rapid and uncontrolled increase in

prices, often exceeding 10% per year. Galloping inflation can severely
disrupt an economy, leading to social unrest and economic instability.

• Hyperinflation: This is the most extreme form of inflation, characterized

by an extremely rapid and uncontrolled rise in prices, often exceeding 50%
per month. Hyperinflation can devastate an economy and lead to
widespread poverty and social breakdown.

Other Types:

Note By Nirajan Raut Sir | Miras Academy

 • Open inflation: This refers to inflation that is readily visible and
acknowledged, reflected in official statistics and publicly known price
increases.

• Repressed inflation: This occurs when price controls or other measures

artificially suppress inflation, leading to shortages and black markets where
prices may be much higher than officially reported.

• Imported inflation: This refers to inflation that is transmitted from one

country to another through trade. For example, if a country imports goods
from another country experiencing high inflation, the price of those goods
may also rise in the importing country.

Understanding the different types of inflation and their causes is crucial for
policymakers to design effective measures to control inflation and maintain
economic stability.

Measurement of Inflation

Measuring inflation involves tracking changes in the prices of a set of goods and
services that represent the typical consumption basket of a household. Here are
some key aspects of inflation measurement:
1. Price Index:

• A price index is a statistical measure that tracks the average change in

prices over time. The most commonly used price index for measuring
inflation is the Consumer Price Index (CPI).

• The CPI is calculated by collecting prices for a fixed basket of goods and
services, such as food, housing, transportation, clothing, and
entertainment, from a representative sample of households.

• Changes in the CPI over time reflect changes in the overall cost of living.

2. Calculating Inflation Rate:

• The inflation rate is calculated by comparing the CPI in a current period to

the CPI in a base period.

• It is typically expressed as a percentage change:

Note By Nirajan Raut Sir | Miras Academy

Inflation rate = ((Current CPI - Base CPI) / Base CPI) x 100%

3. Types of Inflation Measurement:

• Core inflation: This excludes volatile items like food and energy, focusing
on underlying trends in the economy.

• Headline inflation: This includes all items in the CPI basket and provides
a broader picture of price changes.

• Producer Price Index (PPI): This tracks changes in the prices of goods and
services at the wholesale level before they reach consumers.

4. Importance of Inflation Measurement:

• Inflation affects everyone, impacting purchasing

power, wages, investments, and economic growth.

• Measuring inflation accurately is crucial for policymakers to make

informed decisions about monetary and fiscal policy, aiming to manage
inflation within a target range.

• Inflation data is also used by businesses to adjust prices and budgets, and
by individuals to understand how their purchasing power is changing over
time.

5. Limitations of Inflation Measurement:

• The CPI basket may not perfectly represent the consumption patterns of all
households, particularly in dynamic economies.

• Substitution bias can occur when consumers switch to cheaper alternatives

in response to price changes, impacting the measured inflation rate.

• Short-term price fluctuations can distort the overall picture of inflation

trends.

Overall, measuring inflation is a complex process with challenges, but it provides

valuable information for policymakers, businesses, and individuals to understand
and respond to changes in the cost of living and the overall health of the economy.

Note By Nirajan Raut Sir | Miras Academy

The causes of inflation in Nepal

The causes of inflation in Nepal are multifaceted and complex, involving a mix
of internal and external factors. Here are some key contributors:

Internal Factors:

1. Demand-Pull Inflation:

• Increased government spending: Deficit spending by the government can

inject excess money into the economy, leading to higher demand for goods
and services, which can push up prices if supply doesn't keep pace.

• Wage growth exceeding productivity: If wages increase faster than

productivity, it can lead to increased production costs and ultimately higher
prices for consumers.

• Monetary policy: Excessive money supply through expansionary monetary

policy can also fuel inflation by making it easier for people and businesses
to borrow and spend, increasing demand for goods and services.

2. Cost-Push Inflation:

• Rising input costs: Increases in the cost of raw materials, energy, or other
inputs used in production can lead to higher prices for finished goods and
services.

• Infrastructure bottlenecks: Inefficient transportation and distribution

networks can increase transportation costs and limit supply, pushing up
prices for consumers.

• Exchange rate fluctuations: A depreciating Nepali rupee can make

imported goods and services more expensive, contributing to inflation.

External Factors:

• Global commodity prices: Increases in the global prices of oil, food, and
other commodities can have a significant impact on Nepal's import costs
and contribute to domestic inflation.

• International financial crisis: Global economic downturns can reduce

foreign investment and trade, impacting Nepal's economic growth and
potentially leading to higher inflation.

Note By Nirajan Raut Sir | Miras Academy

 • Climate change: Extreme weather events and droughts can disrupt
agricultural production and lead to food price spikes, contributing to
inflation.

Additional Factors:

• Taxation policy: Changes in tax policy can affect the cost of goods and
services and influence inflation.

• Supply chain disruptions: Global supply chain disruptions due to events

like the COVID-19 pandemic can limit the availability of goods and push
up prices.

• Political instability: Political instability can create uncertainty and hinder

economic growth, potentially leading to higher inflation.

Conclusion:

The causes of inflation in Nepal are complex and intertwined. Addressing

inflation effectively requires a multi-pronged approach focused on managing
demand, controlling costs, and mitigating external shocks. This can involve
measures like fiscal discipline, prudent monetary policy, investing in
infrastructure, promoting domestic production, and diversifying trade.

Importance of Measuring Inflation

The importance of measuring inflation cannot be overstated. It plays a crucial role

in various aspects of our lives, impacting individuals, businesses, and
policymakers alike. Here are some key reasons why measuring inflation is
essential:

1. Understanding Cost of Living Changes:

• Measuring inflation allows us to track how the prices of goods and services
change over time, providing a clear picture of how the cost of living is
evolving. This information is crucial for individuals and households in
planning budgets, making financial decisions, and managing their
expenses.

2. Informing Policy Decisions:

• Accurate inflation data is vital for policymakers to make informed

decisions about monetary and fiscal policy. By understanding the current

Note By Nirajan Raut Sir | Miras Academy

 inflation rate and its potential trajectory, policymakers can implement
appropriate measures to control inflation within a desired target range. This
helps maintain economic stability and promotes sustainable growth.

3. Business Planning and Pricing Strategies:

• Businesses rely on inflation data to understand their production costs, set

prices for their products and services, and make informed investment
decisions. Accurate inflation forecasts help them plan for future expenses,
adjust pricing strategies effectively, and navigate economic fluctuations.

4. Wage Adjustments and Labor Relations:

• Inflation data plays a role in determining wage adjustments for employees.

By factoring in inflation, businesses and labor unions can negotiate fair
wages that reflect the changing cost of living, ensuring workers' purchasing
power remains stable.

5. Global Trade and Investment:

• Inflation data is crucial for international trade and investment decisions.

Countries with stable and predictable inflation rates attract foreign
investment and facilitate smoother trade flows. Conversely, high and
volatile inflation can discourage investment and disrupt trade relationships.

6. Social and Political Stability:

• High and persistent inflation can lead to social unrest and political
instability. By monitoring and managing inflation effectively, governments
can create a more stable economic environment, which fosters social
harmony and promotes positive political discourse.

7. Indicator of Economic Health:

• Inflation data is a key indicator of overall economic health. A moderate and

stable inflation rate is generally considered a sign of a healthy and growing
economy. Conversely, high or low inflation can signal potential economic
imbalances or underlying problems that need to be addressed.

Overall, measuring inflation is a critical exercise with far-reaching consequences.

It provides valuable information for individuals, businesses, and policymakers,
enabling them to make informed decisions and navigate economic changes

Note By Nirajan Raut Sir | Miras Academy

effectively. By ensuring accurate and reliable inflation data is readily available,
we can promote economic stability, social well-being, and a sustainable future for
all.

Methods of Controlling Inflation

Controlling inflation requires a multi-pronged approach, targeting both demand

and supply factors that contribute to price increases. Here are some key methods
used to combat inflation:

Demand-Side Measures:

• Monetary Policy:

o Interest Rate Adjustments: Central banks can raise interest rates,

making borrowing more expensive and discouraging spending,
which can ultimately reduce demand and pressure on prices.

o Open Market Operations: Central banks can sell government bonds

to absorb excess money from circulation, tightening the money
supply and dampening demand.

o Reserve Requirements: Raising reserve requirements for banks can

limit their lending capacity and decrease the amount of money
available in the economy.

• Fiscal Policy:

o Government Spending Cuts: Reducing government spending can

inject less money into the economy, potentially lowering demand
and inflationary pressures.

o Tax Increases: Increasing taxes can decrease disposable income and

consumer spending, indirectly reducing demand for goods and
services.

Supply-Side Measures:

• Improving Infrastructure: Investing in infrastructure like transportation

and logistics can reduce production costs and improve efficiency, leading
to lower prices for consumers.

Note By Nirajan Raut Sir | Miras Academy

 • Promoting Competition: Encouraging competition in various sectors can
lead to lower prices as businesses compete for customers and strive for
efficiency.

• Addressing Supply Chain Disruptions: Minimizing disruptions in supply

chains by diversifying sources of raw materials and improving logistics can
help prevent price spikes caused by shortages.

• Investing in Education and Skills: Investing in education and training can

improve the workforce's productivity and lead to higher output, potentially
mitigating the impact of rising wages on prices.

Additional Measures:

• Income Policy: Implementing wage and price controls, though

controversial, can be used in extreme cases to directly restrain price
increases.

• Exchange Rate Adjustments: Appreciating the domestic currency can

make imported goods and services cheaper, potentially reducing overall
inflation.

Challenges and Considerations:

• Each method has its own limitations and potential side effects. Finding the
right balance between managing demand and promoting economic growth
is crucial.

• Inflation often has complex causes, and implementing effective control

measures requires careful analysis and understanding of the underlying
factors.

• Political and social considerations can also influence policy choices,

making it important to find solutions with broad public support and
minimize negative impacts on vulnerable groups.

Overall, controlling inflation is a complex task requiring a nuanced approach that

balances various factors. By effectively managing demand, promoting supply,
and addressing underlying causes, policymakers can strive to maintain a stable
and healthy economic environment for all.

Note By Nirajan Raut Sir | Miras Academy

Public Debt

Public debt, also known as government debt, national debt, or sovereign debt,
refers to the total amount of money that a government owes to its creditors. These
creditors can be:

• Domestic: These are individuals, businesses, and institutions within the

country, who typically buy government bonds or other securities to earn
interest.

• Foreign: These are individuals, businesses, and institutions outside the

country, who might also invest in government bonds or provide loans to
the government.

In essence, public debt is like a loan taken out by the government to finance its
activities. These activities can include:

• Funding essential services: Public

education, healthcare, infrastructure, and national defense are some
examples.

• Stimulating the economy: Governments may borrow money to invest in

infrastructure projects or provide tax cuts to boost economic growth.

• Managing budget deficits: If a government spends more money than it

receives in taxes, it may need to borrow to cover the difference.

Understanding the level of public debt is important because it can have various
implications for a country's economy:

• High levels of debt can:

o Increase the risk of the government defaulting on its loans, which

could damage the country's credit rating and financial stability.

o Lead to higher interest rates, which can hinder economic growth.

o Limit the government's ability to spend on essential services or

respond to unexpected crises.

• Moderate levels of debt can:

o Provide resources for essential investments that promote long-term

growth.

Note By Nirajan Raut Sir | Miras Academy

 o Act as a cushion during economic downturns by allowing the
government to spend more without raising taxes.

Types of Public Debt:

Public debt, the money a government owes to its creditors, comes in various
forms, each with its own characteristics and implications. Here's a breakdown of
some main types:

1. Internal Debt vs. External Debt:

• Internal Debt: Money owed to creditors within the country, including

individuals, businesses, and financial institutions. This can happen through
various means like:

o Government Bonds: Issued by the government to raise

money, offering investors fixed interest payments over a set period.

o Treasury Bills: Short-term debt instruments with maturities less than

a year, often used for managing cash flow.

o Savings Bonds: Government-issued securities targeting retail

investors, typically offering lower interest rates but promoting
financial inclusion.

• External Debt: Money owed to foreign creditors, including

governments, international organizations, and private investors. This can
involve:

o Sovereign Bonds: Issued by the government on international

markets, attracting foreign investment with potentially higher
interest rates.

o Loans from International Organizations: Institutions like the IMF or

World Bank may provide loans to developing countries, often tied to
specific development goals.

o Commercial Bank Loans: Governments may borrow directly from

commercial banks, offering collateral or guarantees.

Note By Nirajan Raut Sir | Miras Academy

2. Short-Term Debt vs. Long-Term Debt:

• Short-Term Debt: Maturities under one year, offering quick access to funds
but potentially higher interest rates and greater risk of rollover
problems. Examples include Treasury bills and some commercial bank
loans.

• Long-Term Debt: Maturities exceeding five years, providing more stable

funding but with lower liquidity and potential exposure to interest rate
changes. Examples include government bonds and infrastructure project
loans.

3. Direct Debt vs. Indirect Debt:

• Direct Debt: Owed directly by the government itself to its creditors. This
is the most common type of public debt.

• Indirect Debt: Owed by government-owned entities or agencies but

guaranteed by the government. This may be used for specific projects or
sectors like state-owned enterprises.

4. Fixed-Rate Debt vs. Variable-Rate Debt:

• Fixed-Rate Debt: Offers borrowers a predetermined interest rate

throughout the loan's life, providing predictability and risk mitigation.

• Variable-Rate Debt: The interest rate fluctuates based on market

conditions, potentially offering lower rates but exposing borrowers to
interest rate risk.

5. Secured Debt vs. Unsecured Debt:

• Secured Debt: Backed by specific assets or collateral, offering creditors

some additional protection if the borrower defaults.

• Unsecured Debt: Not backed by specific assets, relying solely on the

government's creditworthiness and commitment to repayment.

Objective / Importance / Advantage of Public Debt:

Public debt, while often seen as a negative burden, can serve various objectives
under the right circumstances. Here are some key goals governments may aim
to achieve through strategic public debt management:
1. Financing crucial spending:

Note By Nirajan Raut Sir | Miras Academy

 • Essential services: Public debt can be used to fund necessary expenditures
on healthcare, education, infrastructure, and national defense, which may
not be fully covered by current revenue.
• Stimulating the economy: During economic downturns, governments may
borrow to invest in projects or provide tax cuts to boost GDP and
employment.
• Responding to emergencies: Public debt can provide a cushion during
natural disasters or unexpected crises, allowing the government to react
quickly and effectively without raising taxes immediately.

2. Promoting long-term growth:

• Investing in strategic sectors: Borrowing can fund infrastructure
development, research and development, or education initiatives that lay
the groundwork for future economic expansion.
• Boosting competitiveness: Debt can be used to finance investments in
technology, innovation, or human capital, enhancing a country's ability to
compete in the global market.
• Facilitating structural adjustments: In some cases, borrowing may support
necessary but politically difficult reforms, like restructuring inefficient
state-owned enterprises.

3. Managing budget deficits:

• Bridging revenue gaps: If a government's spending exceeds its income,
debt can be used to cover the shortfall and avoid disruptive cuts to essential
services.
• Smoothing out fluctuations: Over time, government revenue and spending
can fluctuate due to various factors. Debt can help smooth out these
fluctuations and maintain fiscal stability.
• Providing flexibility: Having access to borrowing capacity allows
governments to adjust their spending to respond to changing economic
conditions without relying solely on tax increases.

4. Enhancing monetary policy effectiveness:

• Counteracting recessionary pressures: In times of economic weakness,
governments can increase spending financed by debt, injecting additional
demand into the economy and supporting aggregate demand.

Note By Nirajan Raut Sir | Miras Academy

 • Stabilizing exchange rates: In some cases, debt issuance in foreign
currency can help manage exchange rates and stabilize an open economy.
Current Status of Public Debt of Nepal

Current Status of Nepal's Public Debt (as of January 29, 2024):

Overall Levels:
• Total Public Debt: NPR 2,340.60 billion (approximately USD 18.38
billion)
• Debt-to-GDP Ratio: 43.49% (Source: Public Debt Management
Office, Nepal)

Composition of Debt:
• External Debt: NPR 1,025.84 billion (49.40%)
• Internal Debt: NPR 1,314.76 billion (50.60%)
• Predominant creditors: Japan, India, Asian Development Bank, World
Bank

Recent Trends:
• Increase in total debt: Public debt has grown by NPR 41.25 billion in the
first quarter of the current fiscal year (FY 2024-85).
• Shifting composition: While external debt decreased slightly, internal debt
continued to rise due to government borrowing from domestic creditors.
• Concerns over sustainability: The debt-to-GDP ratio has exceeded the
periodic targets of the Sustainable Development Goals and the final 2030
target of 35%.

Source of Public Debt of Nepal:

Domestic Sources:
• Individuals and businesses: They can invest in government-issued bonds,
treasury bills, and citizen saving investment bonds. These instruments offer
different maturities and interest rates, attracting diverse investors.
• Financial institutions: Banks, insurance companies, and other financial
institutions contribute significantly to the domestic debt pool by
purchasing government securities.

Note By Nirajan Raut Sir | Miras Academy

 • Provident funds and pension funds: These funds often invest a portion of
their assets in government bonds to ensure stable returns for their
beneficiaries.

Foreign Sources:
• Multilateral institutions: Organizations like the World Bank, Asian
Development Bank, and International Monetary Fund provide loans and
credits to Nepal for development projects and infrastructure initiatives.
These loans often come with concessional interest rates and longer
maturities.
• Bilateral creditors: Governments of other countries, particularly India and
Japan, have extended loans to Nepal for various purposes, including budget
support and specific projects.
• Commercial banks and private investors: In some cases, Nepal may access
loans from international commercial banks or private investors, typically
at higher interest rates compared to multilateral or bilateral loans.

Raising Public Debt in Nepal

Domestic Sources:
• Individuals and businesses:
o Government bonds: These offer fixed interest rates over set periods,
like 5-year or 10-year bonds.
o Treasury bills: These are short-term debt instruments, typically
maturing within a year, offering higher interest rates but less
stability.
o Citizen saving investment bonds: These target retail investors,
offering lower interest rates but promoting financial inclusion and
potentially mobilizing smaller savings.
• Financial institutions:
o Banks and insurance companies: They invest a significant portion of
their assets in government securities for stable returns and risk
management.
o Provident funds and pension funds: They allocate a portion of their
funds to government bonds to ensure stable returns for their
beneficiaries.

Note By Nirajan Raut Sir | Miras Academy

Foreign Sources:
• Multilateral institutions:
o World Bank: Provides loans and credits for development projects
like infrastructure, education, and healthcare, often at concessional
rates and longer maturities.
o Asian Development Bank: Similar to the World Bank, offering loans
and credits for various development projects with concessional
terms.
o International Monetary Fund: May offer emergency loans or credit
lines to support Nepal's macroeconomic stability.
• Bilateral creditors:
o India and Japan: These are major bilateral creditors, providing loans
for specific projects like infrastructure development or budget
support.
o Other countries: Governments of other countries may also offer
bilateral loans or grants for specific purposes.
• Commercial banks and private investors:
o Commercial bank loans: Less common but possible, typically used
for specific projects or short-term needs, often with higher interest
rates than multilateral or bilateral loans.
o Private investors: In rare cases, private investors may purchase
government bonds or securities, but this is not the primary source of
foreign debt for Nepal.
What is Public Debt Management?

Public Debt Management is the intricate process of establishing and executing a

strategy for managing a government's outstanding debt. This involves a range of
crucial tasks aimed at ensuring:

• Financial sustainability: The government can borrow and repay loans

without compromising its economic stability or future borrowing options.

• Minimizing borrowing costs: Obtaining funds at the lowest possible

interest rates and other financing charges.

Note By Nirajan Raut Sir | Miras Academy

 • Meeting financing needs: Securing adequate resources to fund essential
government programs and investments.

• Managing risks: Mitigating various risks associated with debt, such as

rising interest rates, currency fluctuations, and potential default.

• Maintaining investor confidence: Building trust and attracting investors to

lend to the government.

Key Functions of Public Debt Management:

• Borrowing strategy: Deciding when, how much, and at what terms to

borrow from different sources like domestic and foreign investors.

• Debt issuance: Managing the process of issuing government

bonds, treasury bills, or other debt instruments.

• Debt restructuring: Renegotiating the terms of existing debt to reduce

interest rates, extend maturities, or achieve other objectives.

• Liquidity management: Ensuring the government has sufficient cash flow

to meet its debt servicing obligations on time.

• Risk management: Developing strategies to mitigate risks associated with

rising interest rates, currency fluctuations, and potential default.

• Data and reporting: Maintaining accurate records of the government's debt

and providing transparent reports to investors and the public.

Effective public debt management is crucial for a country's economic well-being.

It can create an environment for stable economic growth, attract foreign
investment, and ensure the government has the resources needed to invest in vital
public services and infrastructure.

Here are some key principles of good public debt management:

• Transparency and accountability: Clear and comprehensive information

about the government's debt should be readily available to investors and
the public.

• Fiscal responsibility: Borrowing should be carefully considered and used

for productive investments that generate returns, avoiding excessive debt
accumulation.

Note By Nirajan Raut Sir | Miras Academy

 • Risk management: Strategies to mitigate risks like rising interest rates and
currency fluctuations should be in place.

• Coordination with fiscal policy: Debt management should be aligned with

the government's overall fiscal policy goals.

Foreign Trade

What is Foreign Trade?

Foreign trade, also known as international trade, refers to the exchange of goods
and services between two or more countries. It's a complex and vital economic
activity that impacts various aspects of our lives, from the availability of
everyday products to global economic growth.
Here's a breakdown of the key elements of foreign trade:
• Exports: Goods and services produced in one country and sold to another
country.
• Imports: Goods and services purchased by one country from another
country.
Benefits of Foreign Trade:
• Increased access to goods and services: Consumers gain access to a wider
variety of products and services than what's domestically available.
• Economic growth and development: Trade promotes competition,
innovation, and specialization, leading to increased productivity and
economic growth.
• Job creation: Both imports and exports create jobs in various sectors, from
manufacturing and transportation to retail and marketing.
• Lower prices: Competition from foreign producers can drive down prices
for consumers.
• Technology transfer: Trade can facilitate the transfer of knowledge and
technology between countries, leading to advancements in various fields.
Challenges of Foreign Trade:
• Trade imbalances: Countries may experience trade deficits if their imports
exceed their exports, potentially leading to currency fluctuations and
economic instability.
• Job losses: Increased imports can lead to job losses in certain sectors,
particularly those facing stiff competition from foreign producers.
• Environmental impact: Transportation and production associated with
trade can contribute to environmental degradation, such as pollution and
resource depletion.

Note By Nirajan Raut Sir | Miras Academy

 • Political and economic instability: Trade can be disrupted by political
tensions, economic crises, and other factors in exporting or importing
countries.
Factors Influencing Foreign Trade:
• Government policies: Trade policies like tariffs, quotas, and subsidies can
influence the flow of goods and services between countries.
• Exchange rates: Fluctuations in currency exchange rates can make exports
more or less competitive in foreign markets.
• Transportation costs: The cost of transporting goods and services can affect
their competitiveness in foreign markets.
• Cultural factors: Cultural differences can influence the demand for certain
goods and services in different countries.
Types of Foreign Trade Theory:
Free Trade Theory
Free trade theory, a prominent school of thought in international economics,
advocates for minimal government intervention in international trade. Its core
principle is that the unrestricted exchange of goods and services between
countries leads to greater economic prosperity for all. Here's a deeper dive into
its key elements:
Assumptions of Free Trade Theory:
• Comparative advantage: As explained earlier, countries specialize in
producing goods and services where they have a relative efficiency
advantage, leading to increased overall production and lower prices for
consumers.
• Rational self-interest: Individuals and businesses act in their own best
interests, seeking to maximize their gains through trade.
• Perfect competition: Markets are perfectly competitive, with numerous
buyers and sellers, ensuring efficient allocation of resources and fair prices.
• Free movement of factors of production: Labor, capital, and other factors
of production can freely move across borders, further optimizing resource
allocation.
Benefits of Free Trade Theory:
• Increased economic growth: By promoting specialization and efficiency,
free trade can lead to higher productivity and economic growth for all
trading nations.
• Lower prices for consumers: Increased competition from foreign producers
can drive down prices for consumers, leading to higher living standards.

Note By Nirajan Raut Sir | Miras Academy

 • Greater variety of goods and services: Consumers gain access to a wider
range of products and services from around the world.
• Job creation: Free trade can create jobs in export-oriented industries,
although it may lead to job losses in less competitive sectors in the short
term.
• Technological advancement: Increased competition and trade can
incentivize innovation and technological advancements, benefiting all
economies.
Criticisms of Free Trade Theory:
• Job losses: Free trade can lead to job losses in certain sectors, particularly
in developed countries facing competition from low-wage countries. This
can lead to social unrest and inequality.
• Environmental concerns: Increased trade can contribute to environmental
degradation through increased transportation, resource depletion, and
pollution.
• Exploitation of labor and resources: Concerns exist about potential
exploitation of labor and resources in developing countries due to low
production costs and lax environmental regulations.
• Loss of national sovereignty: Some argue that free trade can erode national
sovereignty by increasing dependence on foreign trade and reducing
control over domestic industries.
Real-world application of Free Trade Theory:
• Free trade agreements (FTAs) between countries aim to reduce or eliminate
tariffs, quotas, and other trade barriers, facilitating freer trade between
them.
• The World Trade Organization (WTO) sets global trade rules and
adjudicates disputes between member countries, aiming to promote a free
and fair-trading system.
Protectionism Trade Theory:
Protectionism Trade Theory: Defending Domestic Industries
Protectionism trade theory stands in stark contrast to free trade, advocating for
government intervention to limit or restrict imports and protect domestic
industries from foreign competition. While often seen as detrimental to overall
global economic efficiency, protectionism has its own set of arguments and
potential benefits to consider.
Reasons for Protectionism:

Note By Nirajan Raut Sir | Miras Academy

 • Infant industry argument: New and emerging industries need time to
mature and gain competitiveness before facing fierce competition from
established foreign producers. Tariffs or quotas allow domestic industries
to develop and become more efficient over time.
• National security concerns: Protecting key industries like
steel, manufacturing, or technology can be crucial for national security and
strategic independence.
• Employment protection: Industries facing job losses due to imports can be
shielded through protectionist measures to preserve employment levels and
social stability.
• Unfair trade practices: Countering unfair trade practices like
dumping, where foreign producers sell goods below cost to gain market
share, can justify protectionist measures to level the playing field.
• Environmental and social concerns: Protecting domestic industries with
higher environmental and labor standards can incentivize foreign
producers to improve their practices to compete in the protected market.
Instruments of Protectionism:
• Tariffs: Taxes imposed on imported goods, increasing their price and
making them less competitive compared to domestic products.
• Import quotas: Restrictions on the quantity of specific goods that can be
imported, limiting competition and potentially raising domestic prices.
• Subsidies: Direct financial support to domestic industries to make them
more competitive and lower their production costs.
• Non-tariff barriers: Technical regulations, product standards, and other
administrative measures that make it difficult or costly for foreign goods
to enter the market.
Criticisms of Protectionism:
• Reduced economic efficiency: Protectionism can lead to higher prices for
consumers, reduced consumer choice, and deadweight loss (a net loss to
the economy due to inefficient allocation of resources).
• Job displacement: While protecting jobs in one sector, protectionism can
lead to job losses in other sectors that rely on imports or lose export markets
due to retaliatory measures.
• Distortion of trade patterns: Protectionism can lead to inefficient allocation
of resources and production globally, hindering overall economic growth.

Note By Nirajan Raut Sir | Miras Academy

 • Increased risk of trade wars: Retaliatory measures by trading partners in
response to protectionist policies can escalate into trade wars, harming all
involved economies.
• Corruption and rent-seeking: Protectionist measures can create
opportunities for rent-seeking behavior, where individuals or businesses
benefit unfairly from restricted trade without necessarily improving
efficiency.
Real-world examples of Protectionism:
• The U.S. tariffs on steel and aluminum imports imposed in 2018 sparked
trade tensions with China and the European Union.
• China's extensive use of industrial subsidies for various sectors has raised
concerns about unfair competition and distortion of global trade.
• Japan's restrictive agricultural policies aim to protect domestic farmers but
have led to higher food prices for consumers.

Meaning of Trade Deficit

A trade deficit, sometimes called a negative balance of trade, occurs when a
country's imports exceed its exports during a given period, usually a year. In
simpler terms, a country buys more goods and services from other countries than
it sells to them.
Here's a breakdown of the key points:
Why does a trade deficit happen?
• Demand for foreign goods and services: Consumers within a country might
prefer or have greater access to imported goods and services compared to
domestically produced ones.
• Production factors and specialization: A country might lack the resources
or skills to produce certain goods efficiently, causing them to rely on
imports.
• Exchange rates: A strong currency can make domestic exports more
expensive in foreign markets, while making imports cheaper, potentially
encouraging a trade deficit.
• Foreign investment: A country receiving significant foreign investment
may use those funds to import more goods and services.
Implications of a trade deficit:
• Currency pressure: A persistent trade deficit can lead to depreciation of the
domestic currency as demand for foreign currency to pay for imports
increases.

Note By Nirajan Raut Sir | Miras Academy

 • Job losses: Some domestic industries facing competition from imports
might experience job losses, raising concerns about unemployment and
economic instability.
• External debt: To finance the trade deficit, a country might need to borrow
from foreign creditors, leading to increased external debt.
• Macroeconomic imbalances: A large trade deficit can contribute to larger
current account deficits, potentially creating macroeconomic imbalances
and raising concerns about economic sustainability.
Cause of Increasing Trade Deficit in Nepal:
he increasing trade deficit in Nepal is a complex issue with multiple contributing
factors. Here are some of the key causes:
High Reliance on Imports:
• Limited domestic production: Nepal lacks the capacity and resources to
produce a wide range of goods and services, leading to a high dependence
on imports for basic necessities like food, fuel, and consumer goods.
• Low export competitiveness: Nepal's exports often face challenges like
high production costs, limited product diversification, and lack of
marketing infrastructure, making them less competitive in international
markets.
• Geographical constraints: Nepal's landlocked status increases the cost and
complexity of trade, making imported goods relatively cheaper compared
to domestic alternatives.
Macroeconomic Factors:
• Appreciating currency: The Nepalese rupee has appreciated in recent
years, making imports cheaper and further discouraging domestic exports.
• Remittances: While remittances contribute to Nepal's economy, they can
also lead to increased demand for imported goods, potentially widening the
trade deficit.
• Foreign investment: While foreign investment can bring needed resources,
it can also lead to increased imports of capital goods and equipment, further
contributing to the deficit.
Policy Issues:
• Trade policies: Nepal's trade policies might not sufficiently incentivize
domestic production and exports, while also lacking in measures to restrict
unnecessary imports.
• Investment climate: The business environment in Nepal can be challenging
for domestic producers, with factors like bureaucratic hurdles, inadequate

Note By Nirajan Raut Sir | Miras Academy

 infrastructure, and limited access to finance hindering their growth and
competitiveness.
Additional factors:
• Natural disasters: Earthquakes, floods, and other natural disasters can
disrupt domestic production and infrastructure, further exacerbating the
trade deficit.
• Political instability: Political instability can create uncertainty and
discourage investment, hindering economic growth and export potential.
Addressing the trade deficit:
• Promoting domestic production: Investing in infrastructure, technology,
and skills development can increase the capacity and competitiveness of
domestic industries.
• Diversifying exports: Exploring new markets and products with high
export potential can reduce dependence on traditional export items.
• Improving trade policies: Streamlining trade procedures, reducing tariffs
on essential goods, and providing incentives for exporters can facilitate
trade and boost exports.
• Enhancing the business environment: Addressing bureaucratic hurdles,
improving access to finance, and promoting foreign investment can create
a more conducive environment for domestic businesses.

Role of BFIs to Reduce Trade Deficit:

BFIs: Playing a Crucial Role in Reducing Nepal's Trade Deficit

Banking and Financial Institutions (BFIs) play a significant role in influencing
and potentially reducing Nepal's trade deficit through various channels. Here's
how:
Financing Exports:
• Trade finance: BFIs provide loans, guarantees, and other financial
instruments to support exporters, facilitating their access to working capital
and managing risks associated with international trade.
• Export credit lines: Dedicated credit lines at competitive interest rates can
incentivize and support businesses engaged in export activities.
• Promotional schemes: BFIs can offer subsidized loan rates, fee waivers,
and other incentives to encourage export-oriented businesses and increase
export volumes.
Enhancing Domestic Production:

Note By Nirajan Raut Sir | Miras Academy

 • SME lending: BFIs can provide loans and financial services to Small and
Medium Enterprises (SMEs) involved in domestic production, enabling
them to expand their operations and compete with imported goods.
• Technology adoption: BFIs can support the adoption of new technologies
and equipment by domestic producers through loans and financing
packages, leading to increased efficiency and competitiveness.
• Infrastructure financing: BFIs can play a crucial role in financing
infrastructure projects that improve transportation, logistics, and
communication networks, reducing costs and enhancing export potential.
Promoting Foreign Investment:
• Foreign currency loans: BFIs can provide foreign currency loans to attract
foreign investors and facilitate investment in export-oriented industries.
• Hedging instruments: BFIs offer hedging instruments like forward
contracts and options to mitigate foreign exchange risks for foreign
investors, making Nepal a more attractive investment destination.
• Financial advisory services: BFIs can provide financial advice and support
to foreign investors, helping them navigate the regulatory landscape and
identify investment opportunities in Nepal.
Additional Contributions:
• Remittance channelling: BFIs can ensure efficient and cost-effective
channelling of remittances, promoting investment in domestic production
and potentially reducing the reliance on imported goods.
• Financial literacy programs: BFIs can educate businesses and individuals
about trade finance, foreign exchange regulations, and other financial
instruments relevant to international trade, improving overall
understanding and participation.
Remittance:
In simplest terms, a remittance refers to the transfer of money from one person or
party to another, typically across borders. It's commonly used in the context of:
• Migration: When someone working abroad sends money back to their
family or community in their home country.
• International transfers: Sending money between relatives, friends, or
business associates in different countries.
• Financial services: Banks or money transfer services facilitating
international remittance transactions.
Key aspects of remittances:

Note By Nirajan Raut Sir | Miras Academy

 • Sender: The person or entity initiating the transfer (e.g., migrant
worker, individual sending money to family).
• Recipient: The person or entity receiving the transferred funds (e.g., family
members, businesses).
• Amount: The value of the money being transferred.
• Channel: The means used to send the money (e.g., bank transfer, money
transfer service, informal channels).
• Fees: Costs associated with the transfer, typically charged by the service
provider.
Significance of remittances:
• Source of income: For families in developing countries, remittances can be
a crucial source of income, contributing to poverty reduction, improved
living standards, and increased investment in education and healthcare.
• Economic driver: Remittances can stimulate local economies through
increased consumption, investment in small businesses, and job creation.
• Development impact: They can contribute to development goals like
poverty reduction, education, and healthcare by providing resources and
funding for local initiatives.
Challenges associated with remittances:
• High fees: Costs of sending and receiving remittances can be
high, especially for smaller amounts, impacting their effectiveness as a tool
for development.
• Informal channels: Informal channels, while often cheaper, can lack
transparency and regulations, posing risks for senders and recipients.
• Financial inclusion: Access to formal remittance services may be
limited, particularly in rural areas, excluding some potential beneficiaries.
Factor Affecting Remittance:
The flow of remittances, the money sent from migrants to their home countries,
is influenced by a complex interplay of various factors. These factors can be
broadly categorized into:
Sender-related factors:
• Income level: Higher income of migrants generally leads to higher
remittance amounts.
• Employment status: Stable employment and higher wages in the host
country can increase remittance capacity.
• Family size and composition: The number of dependents and their needs
can influence the frequency and amount of remittances sent.

Note By Nirajan Raut Sir | Miras Academy

 • Motivation for migration: Those migrating for economic reasons might
prioritize sending remittances, compared to those migrating for education
or other purposes.
• Financial literacy: Understanding of financial services and remittance
channels can influence cost-effectiveness and frequency of sending money.
Receiver-related factors:
• Economic conditions: Poverty, unemployment, and lack of access to
financial services in the home country can increase the need for
remittances.
• Investment opportunities: Availability of investment opportunities in the
home country can incentivize migrants to send larger amounts.
• Social and cultural norms: Cultural expectations and social pressure can
influence remittance behaviour.
• Financial inclusion: Access to formal financial services in the home
country can facilitate efficient and secure receipt of remittances.
Economic and political factors:
• Exchange rates: Fluctuations in exchange rates can affect the value of
remittances received in the home country.
• Remittance fees: Costs associated with sending and receiving remittances
can impact their effectiveness.
• Government policies: Policies like tax incentives or targeted programs can
encourage or discourage remittance flows.
• Political stability: Political instability in the home country can lead to
uncertainty and discourage remittances.
Technological factors:
• Development of mobile banking and digital payment platforms: These
technologies can make remittances cheaper, faster, and more accessible.
• Expansion of internet access: Improved internet connectivity in rural areas
can increase access to remittance services.
Other factors:
• Natural disasters: Disasters in the home country can create a sudden and
urgent need for remittances.
• Education level: Higher education levels of migrants can lead to higher
income and potentially higher remittance amounts.
The Trend of Remittance in Nepal:

Remittances play a crucial role in the Nepalese economy, and their trend over the

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past years has been impressive but also complex. Here's a breakdown of the key
observations:
Significant Growth:
• Remittances to Nepal have steadily increased over the past decade, more
than quadrupling from NPR 87.1 billion in 2013 to NPR 1,007 trillion
(USD 8.33 billion) by the end of FY 2021/22.
• This increase reflects the growing number of Nepalese working
abroad, particularly in countries like Malaysia, Qatar, Saudi Arabia, and
the United Arab Emirates.
• Remittances now constitute a significant portion of Nepal's GDP, reaching
an estimated 23.23% in 2019/20.
Impact on the Economy:
• Remittances have directly contributed to poverty reduction and improved
living standards for many families in Nepal.
• They have driven increased consumption and investment in areas like
housing, education, and healthcare.
• They have also supported the growth of small businesses and the informal
sector.
Challenges and Concerns:
• Dependence on a few countries: The high concentration of remittances
coming from a few countries makes Nepal vulnerable to economic
fluctuations and changes in migration policies in those countries.
• Informal channels: A significant portion of remittances still flow through
informal channels, raising concerns about transparency and potential
exploitation.
• Impact on domestic production: Some argue that reliance on remittances
may discourage domestic production and hinder long-term economic
development.
• Social implications: The flow of remittances can lead to social issues like
family separation, changing gender roles, and increased consumerism.
Recent Trends:
• Despite the overall upward trend, the growth rate of remittances
has moderated in recent years. This may be due to factors like the COVID-
19 pandemic, economic slowdowns in host countries, and stricter
immigration policies.
• There is an increasing focus on formalizing remittance channels through
digital platforms and partnerships with financial institutions.

Note By Nirajan Raut Sir | Miras Academy

 • Government initiatives are aiming to promote investment and productive
use of remittances to foster sustainable economic development.
Positive and Negative Effects of Remittance:
Positive Effects:
• Reduced poverty and improved living standards: Remittances provide
crucial income for families in developing countries, contributing to
improved access to food, healthcare, education, and housing. This can lead
to a significant reduction in poverty and upliftment of living standards for
many households.
• Investment in productive activities: Remittances can be used to invest in
small businesses, agriculture, and other productive activities, fostering
economic growth and creating jobs. This can not only benefit individual
families but also contribute to wider community development.
• Economic stability and resilience: Remittances can serve as a safety net
during economic downturns, acting as a buffer against external shocks and
providing much-needed foreign currency for the receiving country. This
can enhance economic stability and resilience in the face of unforeseen
challenges.
• Improved infrastructure and public services: Governments in remittance-
receiving countries can utilize a portion of remittance inflows to invest in
infrastructure development, social services, and other public goods. This
can benefit all citizens and create a more conducive environment for
overall development.
• Knowledge and technology transfer: Migrants often return home with new
skills and knowledge acquired abroad. This can contribute to technology
transfer and innovation in the receiving country, potentially boosting
productivity and driving economic growth.
Negative Effects:
• Brain drains and skills mismatch: High emigration rates can lead to a "brain
drain" of skilled and educated individuals, creating labor shortages and
skill gaps in certain sectors back home. This can hinder economic
development and limit productivity growth.
• Disruption of family structures and social fabric: Long-term separation of
families due to migration can lead to social challenges like emotional
stress, child neglect, and changes in gender roles. This can have negative
consequences for family stability and community cohesion.

Note By Nirajan Raut Sir | Miras Academy

 • Dependence on external sources and vulnerability to external
shocks: Reliance on remittances as a primary source of income can make
the receiving country vulnerable to economic fluctuations and policy
changes in the host countries. This can create instability and hinder long-
term sustainable development.
• Inflation and distortion of exchange rates: Large inflows of remittances can
lead to inflation in the receiving country, particularly if the productive
capacity does not keep pace with increased consumer spending. This can
erode purchasing power and negatively impact living standards.
• Informal channels and potential for misuse: Informal remittance channels
may lack transparency and regulations, posing risks of exploitation and
unfair exchange rates for senders and recipients. Additionally, remittances
might be used for non-productive purposes, hindering their potential
impact on development.
Policy Initiatives:
• Tax incentives: The government offers tax rebates for remittances received
through formal channels, making them more attractive compared to
informal methods.
• Foreign currency account facilities: Migrant workers are allowed to open
foreign currency accounts in Nepali banks, simplifying the process of
managing their earnings and facilitating remittance transfers.
• Dedicated remittance corridors: Partnerships have been established with
remittance service providers in major host countries to offer competitive
rates and ensure efficient delivery of funds.
• Digital remittance platforms: Initiatives like "Connect IPS" and "Remit to
Nepal" promote online platforms for sending and receiving remittances,
providing convenience and transparency.
• Financial literacy programs: The government and NGOs conduct
workshops and campaigns to educate migrant workers and their families
about the benefits and safety of using formal channels.
Regulatory Reforms:
• Streamlining licensing procedures: The process for obtaining licenses for
remittance service providers has been simplified, encouraging more formal
players to enter the market.
• Anti-money laundering measures: Stringent regulations and oversight
mechanisms are in place to prevent money laundering and other illegal
activities associated with informal remittances.

Note By Nirajan Raut Sir | Miras Academy

 • Consumer protection measures: Consumer protection laws and regulations
ensure fair exchange rates, transparency in fees, and timely dispute
resolution mechanisms for users of formal channels.
Infrastructure Development:
• Expanding financial inclusion: Efforts are underway to increase access to
bank accounts and financial services, particularly in rural areas, making it
easier for migrant families to receive remittances through formal channels.
• Improving internet connectivity: Enhancing internet infrastructure in rural
areas facilitates access to online remittance platforms and digital financial
services.
• Collaboration with stakeholders: Partnerships with banks, remittance
service providers, and migrant organizations are crucial for effective
implementation of these initiatives and ensuring wider reach.

Balanced of Payment (BoP):

The balance of payments (BOP) is a statement summarizing all international
financial transactions made by the residents of a country during a specific period,
usually a year. It tracks the flow of money into and out of a country and presents
a broad picture of its economic standing in relation to the rest of the world.
Components / Account of Balance of Payment (BoP):
1. Current Account:
• Records the trade in goods and services between a country and the rest of
the world.
• Includes exports (earnings) and imports (payments).
• A current account surplus occurs when exports exceed imports (positive
balance).
• A current account deficit occurs when imports exceed exports (negative
balance).
2. Capital Account:
• Tracks capital flows between a country and the rest of the world.
• Includes foreign direct investment, portfolio investment, and loans.
• A net inflow of capital leads to a positive balance.
• A net outflow of capital leads to a negative balance.
3. Financial Account:
• Records changes in foreign assets and liabilities.
• Includes foreign exchange reserves, foreign currency deposits, and other
financial instruments.

Note By Nirajan Raut Sir | Miras Academy

 • Can be a source of financing for current and capital account imbalances.
Importance of the Balance of Payments:
• Provides insights into a country's international trade competitiveness,
investment attractiveness, and overall economic health.
• Helps policymakers evaluate the effectiveness of economic policies and
identify potential imbalances.
• Guides decisions on exchange rate management, foreign exchange
reserves, and capital controls.
• Serves as a barometer of investor confidence and can influence market
sentiment towards a country's currency and securities.
Feature of Balance of Payment:
The balance of payments (BOP) boasts several key features that make it a
valuable tool for understanding a country's economic relationship with the world.
Here are some of its most notable features:
Comprehensive:
The BOP captures all international financial transactions between a country and
the rest of the world. This includes trade in goods and services, investment flows,
and changes in foreign assets and liabilities. This comprehensive view provides a
holistic picture of a country's economic interactions and their impact on its overall
financial position.
Double-entry accounting:
The BOP adheres to double entry accounting principles, meaning every
transaction has two sides: a credit and a debit. This ensures that the sum of all
accounts in the BOP is theoretically zero, reflecting the balance between inflows
and outflows of funds.
Structured framework:
The BOP is organized into three main accounts: current, capital, and financial,
which further breakdown into specific sub-categories. This structured framework
simplifies analysis and allows for targeted examination of different aspects of a
country's international financial activity.
Indicators of economic health:
The BOP provides valuable indicators of a country's economic health and
competitiveness. For instance, a trade surplus can indicate strong export
performance and a healthy trade balance, while a persistent current account
deficit can raise concerns about reliance on foreign capital and external debt.
Policy guidance:

Note By Nirajan Raut Sir | Miras Academy

The BOP serves as a guide for policymakers in formulating economic policies.
By analyzing current and potential imbalances, policymakers can make informed
decisions regarding exchange rate management, trade regulations, foreign
investment policies, and measures to control capital inflows or outflows.
Market sentiment gauge:
The BOP can be seen as a gauge of investor confidence towards a country's
currency and securities. A stable and balanced BOP can attract foreign investment
and boost market confidence, while persistent imbalances can raise concerns and
lead to capital flight.
Dynamic and evolving:
The BOP is not static; it constantly changes as international economic conditions,
trade patterns, and investment flows evolve. This dynamic nature requires
continuous monitoring and analysis to ensure timely adaptation of economic
policies and strategies.
Limitations:
While the BOP is a valuable tool, it's important to recognize its limitations.
Statistical discrepancies can sometimes occur due to varying recording practices,
and the interpretation of the BOP requires careful consideration of the specific
context and circumstances of each country.

Use or Functions of Balance of Payment:

• It helps to examine the economic performance of the nation.
• Helpful to examine the effectiveness of associated policies.
• Shows the status of the external sector of the economy.
• Assists in formulating monetary, fiscal, and financial policies.
• Helpful to recognize economic disturbances.
• Helps to maintain a stable exchange rate and adequate foreign exchange.
• Helpful for international comparison.
Types of Balance of Payment
The balance of payment can be divided into the following three types.
Surplus BOP: If the amount of money a country receives from the rest of the
world more than the amount it pays out, it is called a surplus balance of payments.
Deficit BOP: If the amount of money a country receives from the rest of the
world less than the amount it pays out, it is called a deficit balance of payment.

Note By Nirajan Raut Sir | Miras Academy

Balanced Balance of Payment: If the amount of money a country receives from
the of the world is equal to the amount it pays out, it is called a balanced balance
payment.
Cause of disequilibrium in BoP
The balance of payments (BOP) is a record of a country's economic transactions
with the rest of the world. Disequilibrium in the balance of payments occurs when
there is an imbalance between a country's receipts (exports and capital inflows)
and its payments (imports and capital outflows). Several factors can contribute to
disequilibrium in the balance of payments:
1. Trade Imbalance: If a country's exports are consistently lower than its
imports, it will experience a trade deficit. This trade imbalance can lead to
a current account deficit in the balance of payments.
2. Capital Flows: Differences in capital flows, including foreign direct
investment (FDI), foreign portfolio investment (FPI), and other financial
transactions, can contribute to imbalances. Sudden outflows of capital, for
example, can lead to a financial crisis and negatively impact the balance of
payments.
3. Exchange Rate Movements: Fluctuations in exchange rates can affect the
competitiveness of a country's exports and imports. A sharp appreciation
of the national currency can make exports more expensive for foreign
buyers, leading to reduced export earnings and a current account deficit.
4. Economic Policies: Government policies related to trade, fiscal, and
monetary matters can impact the balance of payments. For example, if a
country pursues expansionary fiscal or monetary policies, it may
experience increased imports and a trade deficit.
5. External Shocks: Unexpected events such as natural disasters,
geopolitical tensions, or global economic downturns can disrupt trade
patterns and capital flows, leading to imbalances in the balance of
payments.
6. Debt Levels: High levels of external debt can lead to increased interest
payments and debt service obligations, putting pressure on the balance of
payments. Countries with significant debt may find it challenging to meet
their payment obligations without running a deficit.
7. Terms of Trade Changes: Shifts in a country's terms of trade (the ratio of
export prices to import prices) can impact the balance of payments. If a
country's terms of trade deteriorate, it may receive fewer goods or services
in exchange for its exports, leading to a trade imbalance.

Note By Nirajan Raut Sir | Miras Academy

 8. Inflation Differentials: Variations in inflation rates between countries can
affect the competitiveness of exports. If a country experiences higher
inflation than its trading partners, its exports may become less competitive,
contributing to a trade deficit.
Measure to correct unfavorable BoP.
1. Exchange Rate Adjustment:
• Depreciation: Allowing the national currency to depreciate can
make exports cheaper and imports more expensive, potentially
improving the trade balance.
2. Trade Policies:
• Tariffs and Quotas: Implementing tariffs or quotas on imports can
help reduce the trade deficit by limiting the influx of foreign goods.
• Export Promotion: Encouraging and supporting domestic
industries to increase exports can contribute to a more favourable
BOP.

3. Fiscal Policy:
• Austerity Measures: Implementing fiscal austerity measures, such
as reducing government spending or increasing taxes, can help
reduce domestic demand, which may contribute to a decrease in
imports.
• Investment Incentives: Providing incentives for domestic and
foreign investments can stimulate economic growth and potentially
increase export capacity.
4. Monetary Policy:
• Interest Rate Policy: Adjusting interest rates can influence capital
flows. Higher interest rates may attract foreign capital, which can
improve the capital account.
• Open Market Operations: Central banks can engage in open
market operations to manage the money supply and influence
exchange rates.
5. Structural Reforms:
• Labor Market Reforms: Improving labour market efficiency can
enhance productivity and competitiveness, contributing to increased
exports.

Note By Nirajan Raut Sir | Miras Academy

 • Deregulation: Removing unnecessary regulations and barriers to
trade and investment can encourage economic growth and improve
the BOP.
6. Debt Management:
• Debt Restructuring: Negotiating with creditors to restructure
external debt may provide relief and reduce the financial burden on
the country's balance of payments.
7. International Assistance:
• Bilateral and Multilateral Agreements: Seeking assistance from
other countries or international organizations can provide financial
support and help address structural issues contributing to the BOP
imbalance.
8. Import Substitution:
• Promoting Domestic Production: Encouraging the production of
goods domestically instead of relying on imports can help reduce
import dependency.
9. Stabilization Programs:
• IMF Programs: In some cases, countries may enter into agreements
with the International Monetary Fund (IMF) to implement economic
stabilization programs that include policy reforms aimed at restoring
macroeconomic stability.

Nepal's balance of payments (BOP) position

Nepal's balance of payments (BOP) position has been fluctuating in recent
years, with both positive and negative aspects to consider:
Positive aspects:
• Surplus in 2021/22: As of FY 2021/22, Nepal achieved a BOP surplus of
NPR 1,007 trillion (USD 8.33 billion), marking a significant increase from
previous years. This surplus is primarily driven by:
o Growth in remittances: Remittances from Nepalese working abroad
have been a major source of foreign currency and economic stability
for Nepal, reaching an estimated NPR 1,007 trillion in FY 2021/22.
o Improving exports: Exports of Nepalese goods and services have
been gradually increasing, particularly in areas like carpets,
garments, and agricultural products.

Note By Nirajan Raut Sir | Miras Academy

 o Reduced imports: Due to government policies and the COVID-19
pandemic, imports have shown some moderation, further
contributing to the BOP surplus.
Negative aspects:
• Dependence on remittances: While remittances are crucial, their high
concentration from a few countries makes Nepal vulnerable to fluctuations
in those economies and changes in migration policies.
• Informal channels: A significant portion of remittances still flow through
informal channels, raising concerns about transparency and potential risks
for senders and recipients.
• Current account deficit: Despite the overall BOP surplus, Nepal still faces
a current account deficit, as imports continue to exceed exports. This
deficit raises concerns about long-term sustainability and reliance on
foreign capital.
• Limited diversification: The Nepalese economy remains heavily reliant on
tourism and agriculture, making it vulnerable to external shocks and
limiting its export potential.

In short:
Public Debt
• Public debt is the loan raised by the government within the country or
a form of promise outside the country.
• Public debt can internal debt and foreign debt
• Internal debt can be raised from central bank, BFIs, large industries, and
riches.
• Foreign debt can be raised from foreign country and foreign institutions.
• The total public debt of Nepal is 30.2% of GDP in year 2075/76 B.S.
(Base Year of 15th Plan ) which is increased to 41.5% % in year 2078/79.
Objectives of Public Debt
• To cover budgetary deficit
• To avoid unpopularity of taxation
• To maintain economic stability
• To maintain economic development

Note By Nirajan Raut Sir | Miras Academy

 • To utilize foreign capital and technology
• To run social overhead and welfare programs
• To meet unexpected contingencies
• To finance public sector enterprises
Classification of Public Debt
• Internal vs External Debt
• Short term, medium term & Long term
• Redeemable Vs Irredeemable Debt
• Funded Vs Unfunded Debt

Internal Debt
• It is the loan raised from individuals, National BFIs & central bank
within the areas controlled by public authority.
• It involves only the transfer of fund from public to government within
a country.
• Productive capacity will not be affected.
• Internal debt should be raised without reducing the investment of
private sectors in the economy.
• As per budget of this year government has targeted to raise Rs 239
billion internally.
Instruments of Internal Debt
• Short term instrument
o T-bills
• Long term instruments
o Government bonds
o Development bonds
o Citizen saving bonds.
o Foreign Bonds

Debt Sustainability

Note By Nirajan Raut Sir | Miras Academy

 • A country's public debt is considered sustainable if the government is able
to meet all its current and future payment obligations without
exceptional financial assistance or going into default.
• How much debt an economy can safely carry???

PV of debt in percent of:

• Export (100 percent for weak, 150 percent for medium and 200 percent
for strong)
• GDP (30 percent for weak, 40 percent for medium and 50 percent for
strong)
• Revenue (200 percent for weak, 250 percent for medium and
300 percent for strong)
• Debt service in percent of:
• Export (15 percent for weak, 20 percent for medium and
» 25 percent for strong)
• Revenue (25 percent for weak, 30 percent for medium and 35 percent for
strong)

Case of Nepal: Total Debt to GDP Ratio

80
P 70
e 60
r 50
c 40
e 30
20 Total Debt to GDP Ratio
n
10
t 0

Year

Note By Nirajan Raut Sir | Miras Academy

Foreign Debt
• The fund raised from external institutions and government to fulfil the
deficit financing is known as foreign debt.
• Foreign debt can be in the form of hard loan & soft loan.
• Net payment goes out of the country as interest payment.
• In Nepal the proportion of foreign debt is currently 24%
• This is government has projected to raise foreign debt of Rs 283 billion

Positive Impact of Public Debt

• Source of deficit financing
• Increase in production.
• Increase in investment.
• Increase in saving in the economy.
• Development of infrastructure in the country
• Tax burden of the people will be reduced.

Negative Aspect of Public Debt

• Country can be obliged to debt trap in case of unproductive mobilization
of public debt.
• Consumption will be reduced in the economy.
• Increase dependency.
• Corruption may increase.
• Internal loan may reduce the investable fund of the private sectors.
• Productive utilization of foreign debt is always the question in developing
countries like Nepal.
• Terms and conditions in foreign debt

Key Issues
• Growth in debt ratio might lead to crowding out of private investments.
• Government spending out of borrowed funds might be unproductive.
• Debt servicing may become burden.
• Debt trap situation may emerge as the country will borrow more and more
even to pay interest obligation.
• Maturity structure, behaviour of interest rate, etc

Way forward
• Nepal’s Overall risk of debt distress is low. Even though, efficient, and
effective management of public debt is crucial.
• Appropriate coordination between fiscal policy and monetary policy.

Note By Nirajan Raut Sir | Miras Academy

Balance of Payment
• The balance of payments (BOP) is a statistical statement that
summarizes transactions between residents and non-residents during a
period (BPM6).
• The notion of residence is determined by centre of economic interests
rather than nationality.
• BOP statistics are compiled on the basis of commonly accepted
methodology developed by the IMF.
• The IMF published Balance of Payments Manual in 1948, which has
been undated to sixth edition (1948, 1950, 1961, 1977, 1993, 2008).
• Balance of payments consist of the following accounts: (1) Current
Account (2) Capital Account (3) Financial Account

Structure of Balance of Payment

• Current Account (BPM6) It shows the flows of goods, services, primary
income, and secondary income between residents and non-residents.
• Specifically, current account consists of the following items:
• CA = G + S + Y1+Y2
Were,
G = General merchandise, non-monetary gold, net exports under me chanting S=
Transport, travel, repair, financial, communication, construction, etc.
Y1=Compensation of employees, investment income, other primary income
(rent)
Y2= All transfers, which are not capital (grants, remittances, pensions, etc.)
• Capital Account (BPM6) It records acquisitions and disposals of non-
produced nonfinancial assets.
• Specifically, KA consists of Capital transfers (debt forgiveness,
investment grants, etc.) Acquisition/disposal of non-produced,
nonfinancial assets (land and subsoil assets, patents, copyright,
trademarks, franchise, etc.)
Financial Account (BPM6) Financial account covers all transactions associated
with changes of ownership in the foreign financial assets and liabilities of an
economy.
More specifically, it shows net acquisition and disposal of financial assets and
liabilities.
Specifically, FA consists of the following items:
• Direct Investment
• Portfolio Investment
• Other Investment (trade credits, currency and deposits)
• Official Reserve assets (reserves, SDR holdings, reserve position in IMF

Importance of BOP Statistics

Note By Nirajan Raut Sir | Miras Academy

 • Assessing economy's external performance/position (External trade,
capital flows, reserve position, exchange rate, external competitiveness,
resource gap, int. finance.)
• Policy formation/intervention Monetary Policy: financial resource
mobilization, Forex reserves, interest rate, exchange rate, inflation,
capital flows
• Fiscal Policy: direction of trade, FDI, drawings, transfers, income,
international financial management, etc.
• Business communities Assessing International market potential
(reserve adequacy, trade/CAB surplus/deficit, forex market
(restrictions)
• Individual/households Consumption/investment decision
(trade/investment flows, exchange rates)

4. Monetary and Fiscal Policies

Fiscal policy
• Macroeconomic policy related to government expenditure, government
revenue and public debt is known as fiscal policy.
• The term fiscal has originated from the Italian word fiscalis which means
public purse thus fiscal policy is related to effective management of public
fund .
• Fiscal policy is issued to achieve macroeconomic policy such as economic
growth, employment generation, reduce income inequality etc.
• Fiscal policy is issued by the elected government agency to fulfil the
expectation and demand of general public.
Fiscal Instruments
• Public Expenditure (Current and Capital expenditure)
• Public Revenue (Tax and non-tax revenue)
• Public Debt(Foreign and Internal Debt)
Objectives of Fiscal policy
• To stabilize the price level since fluctuations in prices bring uncertainty
and instability to the economy.
• To increase investment for full employment
• To have rapid economic growth with stability
• To maintain equilibrium in the balance of payments
• To reduce income inequality among the people of the country
• To achieve exchange rate stability
Types of Fiscal Policy
1. Expansionary fiscal policy (Deficit Budget or financing through public
debt)

Note By Nirajan Raut Sir | Miras Academy

 2. Contractionary fiscal policy (Surplus budget i.e Gov. Expenditure less than
government revenue)
Budget Highlights 2022
Revenue Side
• Revenue – Rs 1240 billion
• Grant – Rs 55.56billion
• Public Debt- Rs 498 Billion(Rs. 242 Foreign Debt + Rs 256 billion)
• Deficit Budget
Budget Highlights 2022/23
Expenditure Side
Budget Size: 1793 billion
Re-Current Expenditure- 753 billion (42%)
Capital Expenditure- 380 billion (21.2%)
Financial Management- 230 billion (12.8%)
Financial Handover to Province/Local Government - 429 billion (24%)
Major Features

• Major goal of transferring import economy to internal production,

macroeconomic stability from risk
• Inclusive development from marginalization
• Deficit budget
• Economic growth of 8% and inflation not more than 7%
• Focused on external sector stability (e.g. 8% cash subsidy to cement,
footwear, steel etc and 10% provision of IPO to attract remittance)
• Productive Use of Public Debt
• New scheme for farmers as farmer pension scheme
• Microfinance fund of 500 billion to finance agricultural loan.
• Attract 1 million tourists.
• Facilities and concession to COVID-19 affected sectors of the economy.
• Linking agriculture to the industry

Problems of Budgetary System in Nepal

• Less capital expenditure more current expenditure
• Poor absorptive capacity for capital expenditure
• Poor monitoring and evaluation
• Poor project management
• Weak Capacity of the Contractors
• Corruption and leakages
• Not well-established reward punishment system
• Off budgetary expenditure at the end of fiscal year

Note By Nirajan Raut Sir | Miras Academy

Monetary Policy
• The macroeconomic policy related to money supply, interest rate and
exchange rate issued and enforced by central bank or central monetary
authority of the country to achieve broad economic objectives.
• It is a complementary policy to the fiscal policy.
• It is the demand side economic policy used by the government of a
country to achieve macroeconomic objectives like price stability,
economic growth, balance of payment stability, full employment, etc.
• Monetary policy is only a means to an end, not an end.
Objectives of Monetary Policy
• To stabilize the price level since fluctuations in prices bring uncertainty
and instability to the economy.
• To increase investment for full employment
• To have rapid economic growth with stability
• To maintain equilibrium in the balance of payments
• To reduce income inequality among the people of the country
• To achieve exchange rate stability
Instruments of Monetary Policy
• Quantitative Instruments
• Qualitative Instruments
Quantitative Instruments
• affect the level of aggregate demand through the supply of money, cost
of money and availability of credit. The quantitative instruments of
monetary policy are as follows:
• Bank rate policy: Simply bank rate refers to the rate of interest levied
by central bank to commercial banks. Under this, the central bank
increases the bank rate during inflationary situation and decreases the
rate in deflationary situation. Bank rate in this year’s monetary policy
is 8.5%
• Open market operation: The open market operation refers to the
purchase and/or sale of short term and long term securities by the central
bank in the open market. Under inflationary situation, the central bank
sells the securities. On the other hand, it buys securities to address the
deflationary situation.
• Variation in Cash Reserve Ratio (CRR) : The Commercial Banks are
required to keep a certain proportion of their total deposit in the form of
cash reserves in the central bank which is called CRR. If the reserve
ratio is high, the commercial banks will be in a position to create a
smaller volume of credit. On contrary, if the ratio is low, the commercial
banks can expand their credit. CRR 4 % this year for A, B, C grade BFIs
• Statutory Liquidity Ratio (SLR) : The Commercial Banks are
required to maintain a certain proportion of their total deposit in the

Note By Nirajan Raut Sir | Miras Academy

 form of cash and other liquid assets which is called SLR . If the reserve
ratio is high, the commercial banks will be in a position to create a
smaller volume of credit. On contrary, if the ratio is low, the commercial
banks can expand their credit. SLR 12% &10 % for A and B and C class
BFIs respectively
Qualitative Instruments
• Fixing margin requirements: The margin refers to the proportion of
the loan amount which is not financed by the bank. A change in a margin
implies a change in the loan size. This method is used to encourage
credit supply for the needy sector and discourage it for other non-
necessary sectors.
• Consumer credit regulation: Under this, the central bank regulates the
use of bank credits by the customers to buy durable consumer goods by
influencing the amount of down payment and the maximum amount of
repayment. This can check the credit use and then inflation in the
country.
• Publicity: Under it, the central bank expresses its views based on facts
and figures by using public media. It influences the credit policy of the
commercial banks.
• Credit rationing: Under this, the central bank fixes credit amount to
be lent by the banks. Credit is rationed by limiting the amount available
for each commercial bank or fixing the upper limit of credit.
• Moral suasion: It implies to pressure exerted by the central bank on the
overall banking system without any strict action. It involves persuasion,
suggestion, and request to banks.
• Directives: Under this method, the central bank issue frequent
directives to commercial banks. These directives guide commercial
banks in framing their lending policy.
Types of Monetary Policy
1. Expansionary monetary policy
2. Contractionary monetary policy

Expansionary Monetary policy

If Liquidity Repo Cash Increase

Crisis in the CRR, SLR, Inflow to Creditability
BFIs Bank Rate of BFIs
BIFs

Optimum
liquidity in
BFIS

Note By Nirajan Raut Sir | Miras Academy

Contractionary Monetary policy

Cash Decrease
If excess Repo
Inwards to Creditabilit
Liquidity CRR, SLR,
Central y of BFIs
in the BFIs Bank Rate
Bank

Optimum
liquidity in
BFIS

Major Highlights of Monetary Policy 2022/23

• Monetary policy has been kept cautiously tight to promote macroeconomic
stability by maintaining price and external sector stability and to support
economic growth
• The priority of the monetary policy is to reallocate credit to the productive
• relaxations provided during the COVID-19 pandemic will be gradually
withdrawn and made consistent with the prudent regulatory standards.
• increasing financial literacy, financial access, and financial inclusion along
with digitizing payments and financial transactions.
• Economic growth target of 8%
• Inflation not more than 7 %
• declared FY 2022-23 as “Electronic Transaction Promotion Year”.
• Various interest rates in productive and commercial credit
• CRR 4% to all BFIs whereas SLR 12% for A grade and 10% for B and C
grade
Positive Aspects
• External sector stability and price stability main focus
• Focus on productive use of credit rather than credit growth.
• Special facilities to small and medium enterprises
• Promotion to merger and acquisition
• Varying interest rate in commercial and productive loan
• Institutionalize interest rate corridor help not to lose confidence of the
investors.
• NFRS to micro finance may promote corporate governance and financial
discipline in micro credit sectors.
Negative Aspects

Note By Nirajan Raut Sir | Miras Academy

 • Growth target challenging
• Liquidity management will be a tough task with expansion of economic
activities.
• Digital divide and digital literacy may hinder digital transaction and
digital payment.
• Tough task to formalize the informal economy.
• Poor capacity to make capital expenditure may create temporary
liquidity crunch in the financial system.
• Deprived sector lending is doubtful in implementation.
• Support from all stakeholders is not “a cup of tea”.

Industrial Policy 2010

1. Background
2. Efforts in the past
3. Present Status
4. Main Problems and Challenges
5. Need for New Policy
6. Vision
7. Objectives
8. Policies
9. Strategies
10.Classification of industries
11.Institutional Arrangements

1. Background
• No significant progress in industrial development even after the passage of
a long time of framing of industrial policy 1993
• Rapid industrial development in the world including our neighbouring
countries.
• New Industrial policy is formulated to bring positive changes in socio-
economic condition by increasing the contribution of industrial sector in
GDP.

2. Efforts in the Past

• First Industrial Policy, 1993 to transform the economy from agriculture to
industry.
• The Industrial Enterprises Act, 1993 enacted as directed by the Industrial
Policy, 1993, has created legal basis for development of industries by
making available additional facilities and concessions.
• However, these facilities were minimized by enactment of Income Tax Act
and Fiscal Act enacted year by year.

Note By Nirajan Raut Sir | Miras Academy

 • National Productivity Council and concept of Special Economic Zone was
put forwarded.

3. Present Status
• Despite the past efforts the pace of industrial development is rather
disappointing.
• Contribution of industry sector in GDP is in single digit.
• Nepalese Economy is agriculture and remittance based
• Extreme problem of unemployment and semi-unemployment
• Nepal’s participation in multilateral and regional economic
organization such as WTO, SAFTA & SAPTA etc.

4. Problems and Challenges

• Political instability
• Industrial insecurity,
• Unfavorable labor relation,
• Minimal availability of energy,
• Weak industrial infrastructures,
• Lack of competent human resources,
• Lack of capacity to adopt new technology,
• Low productivity,
• Lack of diversification of exportable items and weak supply
management
• Creating a reliable industrial atmosphere is the major challenge.

5. Need of New Policy

• To create reliable industry-friendly atmosphere
• With the political changes occurred in the country
• To face challenges and opportunities posed by economic liberalization
and globalization.
• To utilize the opportunities arising out from changes occurring in
economic sector, revolution in information technology sector and
Nepal’s accession to multilateral, regional and bilateral treaty
organizations
• To increase the pace of industrial development

Vision
• To make remarkable contribution in national economy through
sustainable and broad-based industrial development in an effective,

Note By Nirajan Raut Sir | Miras Academy

 coordinated and collaborative partnership of public, private and
cooperative sectors thereby to support poverty alleviation.

Objectives
• To increase export of industrial products along with growth in national
income and employment through enhancement of quality and
competitive industrial products and productivity.
• To increase contribution of industrial sector in the balanced national and
regional development by mobilizing local resources, raw materials,
skills and means.
• To establish industrial entrepreneurship as a sustainable and reliable
sector by utilizing latest technology and environment friendly
production process.
• To create strong basis of investment having developed productive
human resources and managerial capacity required for industrial
development thereby establish Nepal as an attractive place for
investment in the South Asian region and in the world as well by.
• To protect industrial intellectual property rights.

Policies
• New technology development
• No pay no work
• Incentives and extra facilities for export-oriented industries
• Establishment of special economic zones
• Emphasis of industries using local resources, raw materials, skills, labor
etc
• Identification and utilization of areas of competitive advantages
• Special emphasis to promote green industries.
• Technical and financial assistance to the industries that use environment
friendly and energy saving technology.
• Reform in macroeconomic policies
• Adherence with multilateral and regional agreements
• Formulation of industrial security force
• Encouragement of NRN to invest.
• Protection of industrial property right
• Production and market promotion of products of small and cottage
industries.

Trade or Commerce Policy 2015/2072 B.S

• Vision
o Achieve economic prosperity by enhancing the contribution of
trade sector to national economy through export promotion.

Note By Nirajan Raut Sir | Miras Academy

 • Goal:
o To achieve inclusive and sustainable economic growth through
export promotion
• Objectives:
o To enhance access of goods, services and intellectual property to
regional and world markets

Strategies of Trade Policy

• Government shall play the role of coordinator, facilitator and regulator to
enhance active participation of the private sector
• Enhance competitive capacity of the products of comparative and competitive
advantage for export promotion.
• Reduce trade deficit by strengthening supply-side capacity.
o Enhance the competitive capacity of exportable service sectors.
• Reduce transaction cost through trade facilitation and institutional
strengthening.
• Mainstream trade in order to establish it as a major component of economy

5.Challenges of Economic Development in Nepal

Challenges of Economic Development

• Economic Growth
• Economic Development
• Factors Affecting Economic Development
• Difference between Economic Growth and Economic Development
• Challenges of Economic Development in Nepal.
Economic Growth
• Economic growth simply means an increase in the production of goods
and services in an economy with the improved use of factor of
productions.
• Economic growth can be measured in terms of increase in real GDP or
real GNP or real Per Capita Income over a period of time generally a
year.
• It represents the increase in the overall productivity that is measured by
the gross domestic product (GDP).
• Productivity means the tendency of a state to produce goods and
services from its own resources. Any rise in the productivity marks the
increase in the economic growth.
• Economic growth is measured in two ways:
1. Real economic growth
2. Nominal economic growth

Note By Nirajan Raut Sir | Miras Academy

 • The factors that hinders the economic growth are unemployment,
inflation, brain drain, poverty, lack of natural resources, lack of human
resources, dearth of foreign investments, education setbacks, social
evils, terrorism, disturbed law and order situation, poor healthcare
facilities, bad living standard
• The economic growth of Nepal is estimated to remain 5.84% this year
as per the economic survey.
Economic Development
• Economic development is the multidimensional concept which is the
aggregate of economic growth and positive changes.
• Economic development is employed to describe a change in a country’s
economy involving qualitative as well as quantitative improvements.
• Economic development thus refers to a process by which per capita
income and economic welfare of a country increases overtime.
• It refers to the absence of rise in poverty and inequality.
• Economic development is the concept of sustainable development
which aims to maintain justice between the generations.
• Difficult to measure and difficult to find universal definition but HDI,
HAI etc are often used to understand stage of economic development.
• Though Adam Smith has explained the problems of economic
development two hundred and forty years ago, yet the economists are
interested to know the problems of underdeveloped countries over last
15-20 years.
• Economic development refers to the satiation of increase in quality of
life or standard of living through the betterment of economic as well as
non-economic situation of the country.

Factors Determining Economic Development

• There are various determinants which shapes the economic
development of the country. These factors can be broadly mentioned as:
1. Economic Determinants
2. Non-Economic Determinants

Economic Determinants
• Quantity and quality of natural resources
• Quantity and quality of human resources (physical labor, human capital
or able entrepreneurs)
• Capital formation and mobilization.
• Low capital output ratio or high marginal efficiency of capital
• Market size
• Technological progress
• Growth oriented economic agencies

Note By Nirajan Raut Sir | Miras Academy

 • International determinants

Non-Economic Determinants
• Social Determinants
• Administrative situation
• Law and order
• Aspiration of development
• Political determinants
• Religious determinants

Challenges of Economic Development in Nepal

• To transform agriculture from subsistence economy to commercialize

farming.
• To protect the domestic industry and increase its capacity utilization and
productivity.
• To reduce absolute poverty and multidimensional poverty
• To mobilize the remittance inflow into productive investment
• To reduce the ever-increasing trade deficit through export promotion
and import substitutions.
• To increase the capital expenditure of the government by enhancing
absorptive capacity of the economy
• To formalize the informal economy through financial inclusion &
literacy
• To attract the FDI in the areas of comparative advantage to reduce the
financial resource gap.
• To increase government investment in social overheads like health,
education & human capital

6. Planning and Economic Development

Since 2013 BS Nepal has participated in Planned Development.
Economic development has been closely linked with planning. Planning has
become a craze, especially in underdeveloped and developing countries.

The concept of economic planning attracted the attention of most developing

countries since its first experiment was made by the Soviet Union in 1928. Since
then, it has been adopted by several countries in various forms.

Need for Planning in Underdeveloped Countries

• Remove the poverty and inequalities:
• Development of Agriculture and Industrial Sector

Note By Nirajan Raut Sir | Miras Academy

 • Development of Infrastructure
• To increase the pace of Economic Growth/ Development
• To improve and Strengthen Market Mechanism.
• Balanced Development of the Economy.
• Development of Money and Capital Markets

Do You Agree???

Picture of Economic Planning in Nepal

• MDGs/SDGs (2001-2015/ 2016-2030)

• Periodic Plan
• MTEF (Mid Term Expenditure Framework)
• Policy and Program
• Budget

Periodic Plan in Nepal

• It has been six decades since the planned development began in Nepal.
With the recent political changes and the resultant establishment of
people’s rights, the need for achieving economic development and building
a prosperous society based on the principle of social justice has become the
state's primary task.
• Serious efforts to plan economic development took place after the
establishment of a planning board in 1955.

National Planning Commission (NPC)

• NPC is the apex advisory body of the Government of Nepal for formulating
national vision, periodic plans, and policies for development.
• It is headed by the Right Honorable Prime Minister. At present, the NPC
has one full-time Vice-Chairman, eight members, and one Member-
Secretary. The Chief-Secretary and Finance Secretary are ex-officio
members of the Commission.

Note By Nirajan Raut Sir | Miras Academy

 • NPC assesses resource needs, identifies sources of funding, and allocates
for socio-economic development.

15th Periodic Plan (2076/77- 2080/81)

• First five-year Plan After the New Constitution.
• First five-year plan after the Federal Governance System.
• Long Term National Vision Up to 2100 B.S. incorporated.
• Per Capita Income to 12,100 US dollar by 2100 BS
• To uplift Nepal to a Developing Nation by 2022 & mid-income nation by
2030 by achieving the SDGs.
• ‘Prosperous Nepal Happy Nepali’
• Plan to build a foundation for Prosperous Nepal Happy Nepali.

Target of Prosperity
• Accessible modern infrastructure and intensive connectivity
• Development and full utilization of human capital potential
• High and sustainable production and productivity
• High and Equitable national income

Target of Happiness
• Well-being and decent life
• Safe, civilized, and decent life
• Healthy and balanced environment
• Good governance
• Comprehensive Democracy
• National unity, security, and dignity

Major Features of the 15th Plan

• 8 National Strategies
• 9 Major Driving Tools
• 8 supporting Sectors.
• Various Quantitative Targets
• Separate Sectorial Plan
• Internalization of SDGs within 8 national and sectorial strategies
• Role of all three tiers of government.
• Role of state and non-state actors.

Challenges of Planning in Nepal

• Challenge due to Covid -19
• Not properly analyzed real grassroots context
• lack of desegregated data/

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 • Not evidence informed.
• Plans are not fully identified based on the needs of the people
• Minimum participation of people
• Lack of proper implementation mechanisms
• Low institutional capacity
• Lack of continuous and effective monitoring and evaluation
• Lack of political and administrative will and commitment
• Political instability/politicization in formulation and implementation

7. Government Budget, Its Types and Importance

Meaning of Government Budget

A government budget is essentially a financial plan for a specific period, usually

a year, outlining the government's expected revenue (income) and expenditure
(spending). It acts as a roadmap for how the government will allocate its resources
to fund various programs and services for its citizens.

Here's a breakdown of the key elements:

Revenue: This refers to the money the government collects from various sources,
such as:

• Taxes: These are the biggest source of government revenue, including

income taxes, sales taxes, and property taxes.

• Fees and fines: The government may charge fees for certain services, such
as driver's licenses or business permits. It may also collect fines for
breaking laws.

• Borrowing: If the government spends more than it collects in revenue, it

may borrow money to make up the difference. This creates national debt,
which needs to be repaid with interest in the future.

Expenditure: This refers to how the government spends its money on various
programs and services, such as:

• Social programs: These programs provide financial assistance and other

services to low-income individuals, families, and the elderly, such as Social
Security, Medicare, and Medicaid.

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 • Education: The government funds public schools, universities, and other
educational institutions.

• Defense: The government spends money on the military to protect the

country.

• Infrastructure: The government builds and maintains roads, bridges,

airports, and other public infrastructure.

• Healthcare: The government provides healthcare services to some

citizens, such as through veterans' hospitals.

Types of Budgets

When it comes to government budgets, there are different ways to categorize

them depending on the perspective. Here are two main approaches:

1. Based on the Budget Balance (Based on the Relationship between Revenue

and Expenditure):

• Balanced Budget: This type of budget aims to

have equal revenue (income) and expenditure (spending). This indicates
no deficit or surplus, and the government spends only what it collects. This
approach promotes financial stability but might be inflexible during
economic downturns or for long-term investments.

• Surplus Budget: This type of budget has more revenue than expenditure,
resulting in a positive balance. This surplus can be used to pay down debt,
invest in future projects, or provide tax cuts. While beneficial for financial
stability, it can also indicate under-spending on critical areas.

• Deficit Budget: This type of budget has more expenditure than revenue,
resulting in a negative balance or deficit. This can be used to stimulate the
economy during recessions or invest in growth initiatives. However,
excessive deficits can lead to debt accumulation and long-term financial
instability.

2. Based on Sectoral Expenditure

• Recurrent Budget: The budget to be spent on items that will be consumed

in less than one year including salaries, allowances, and rent is called a
recurrent budget.

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 • Capital Budget: A budget that is spent or invested in goods that will last
more than one as buildings, land vehicles, furniture, &
• Financial Management Budget: The amount allocated for the payment of
principal loans taken by the government and investment in public
institutions is the financial management budget.

Objectives of the budget

Government budgets serve several crucial objectives, shaping the nation's

economic and social landscape. Here are some of the key goals:

1. Resource Allocation: The budget acts as a tool to allocate resources across

various sectors and programs. It determines how tax dollars collected from
citizens are spent on different priorities, such as:

• Social programs: These aim to provide support and services to vulnerable

populations, like healthcare, education, and welfare.

• Infrastructure: This includes building and maintaining roads, bridges,

public transportation, and other essential systems.

• Defense: This involves funding the military to ensure national security.

• Economic development: The government can invest in initiatives to

stimulate economic growth, job creation, and innovation.

2. Economic Stability: The budget plays a vital role in maintaining economic

stability. By carefully managing revenue and expenditure, the government can:

• Control inflation: Excessive government spending can lead to inflation,

which erodes the purchasing power of citizens. The budget aims to avoid
this by balancing spending with revenue.

• Promote economic growth: Strategic investments in infrastructure,

education, and research can foster economic growth and create jobs.

• Manage economic cycles: The budget can be used to mitigate the effects
of economic downturns by increasing spending or reducing taxes.

3. Redistribution of Income: The government can use the budget to redistribute

income from wealthier individuals to those with lower incomes. This can be
achieved through:

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 • Progressive taxation: This system taxes higher incomes at a higher rate
than lower incomes.

• Social programs: These programs provide financial assistance and services

to low-income individuals and families.

4. Public Service Provision: The government uses the budget to directly

provide essential public services that wouldn't be offered by the private sector,
such as:

• Law enforcement: The budget funds police, courts, and other institutions
responsible for public safety.

• National defence: The budget funds the military to protect the country from
external threats.

• Environmental protection: The budget funds agencies responsible for

protecting the environment and natural resources.

5. Regional Development: The budget can be used to address regional disparities

by:

• Allocating resources to underdeveloped regions: This can involve

investing in infrastructure, education, and healthcare in these areas.

• Offering tax breaks or other incentives to businesses that invest in

underdeveloped regions.

Government Budgetary Cycle/Process (Budget Cycle)

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Challenges Government budgets

Government budgets face various challenges, often stemming from competing

priorities, economic uncertainties, and complex decision-making processes. Here
are some key areas of difficulty:

1. Resource Allocation:

• Competing priorities: Governments juggle numerous demands, from

social programs and infrastructure to healthcare and defense. Striking a
balance between these priorities, often with limited resources, can be
contentious and challenging.

• Special interests and lobbying: Powerful interest groups may lobby for
increased funding for their specific causes, which can influence budget
decisions and divert resources from other priorities.

• Economic uncertainty: Unforeseen economic events like recessions or

natural disasters can disrupt revenue streams and necessitate adjustments
to the budget, often requiring difficult trade-offs.

2. Fiscal Responsibility:

• Balancing spending and revenue: Governments must manage a delicate

balance between meeting essential needs and avoiding excessive debt. This

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 can be difficult, especially during economic downturns where revenue may
decrease.

• Maintaining investor confidence: High levels of debt and deficits can

erode investor confidence, making it more expensive for governments to
borrow money. Striking a balance between spending and debt is crucial for
maintaining financial stability.

• Long-term planning: Budgeting often focuses on the short term, while

crucial challenges like climate change or infrastructure decay require long-
term planning and investment. Balancing immediate needs with long-term
sustainability can be challenging.

3. Transparency and Accountability:

• Public understanding: Complex budget documents can be difficult for

the public to understand, hindering transparency and accountability.
Communicating budget decisions effectively to citizens is crucial for
building trust.

• Pork barrel spending: Earmarks or funds directed to specific projects

without broader justification can be seen as wasteful and undermine fair
allocation of resources. Ensuring transparency and accountability in
spending decisions is essential.

• Political pressure: Politicians may face pressure to prioritize short-term

gains over long-term benefits, leading to unsustainable spending practices.
Balancing political pressures with responsible fiscal management is a
constant challenge.

4. Efficiency and Effectiveness:

• Program evaluation: Assessing the effectiveness of government

programs and identifying areas for improvement can be difficult due to
complex factors and limited data. Ensuring programs deliver value for the
money spent is crucial for efficient resource allocation.

• Bureaucracy and red tape: Complex government processes and

regulations can slow down spending and hinder efficient program
implementation. Streamlining procedures and reducing unnecessary
bureaucracy are important for improving efficiency.

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Fraud and waste: Ineffective oversight and controls can lead to misuse of public
funds. Implementing robust anti-fraud measures and ensuring proper
accountability is essential for efficient spending.

8. Financial Sector Reform

Financial Sector Reform

• The main objective of financial sector reform is to support the effort of the
government to create a sound market-oriented financial system for
macroeconomic stability and private sector-led economic growth.
• The financial sector reform includes the following.
• The banking sector is open to foreign investment.
• The commercial banks are allowed to accept current and fixed deposits on
foreign currency.
• Deregulation of investment rate regime in which the commercial banks are
allowed to fix their interest rate.
• Restructuring of Nepal Bank Limited and Rastriya Banijya Bank.
Enactment of the NRB Act, 2002, Debt Recover Act, 2002, and Banking
and Financial Institution Act, 2006.

Financial Sector Reforms in Nepal

• The financial sector is the backbone or engine of growth of any economy.
• It comprises of depository and non-depository financial institutions,
financial markets, and financial instruments.
• Financial sector reform means gradual liberalization of the financial
market and its players and opening of all types of depository institutions
and other non-depository financial institutions to the private sector.
• Reform is a continuous process.
• Financial sector reform in Nepal was initiated in the 1980s with the support
program of the IMF & Structural Adjustment Program (SAP) of the World
Bank
• The sector started in 1937 when Nepal Bank Limited (NBL), the country’s
first bank, was opened. Since then, the sector proliferated.
• The finance sector regulation and supervision started in 1956 when the
government established NRB under the Nepal Rastra Bank Act, 1955
• In the initial phase, NRB’s main function was credit control through
directed credit programs and interest rate controls, among others.
• From the late 1950s to 1960s, the government expanded the finance sector
by opening new banks and financial institutions (NIDC, RBB & ADBL)
(NIDC-National Industrial Development Corporation)
• Government direct involvement in Interest rate controls, selective credit
policies, and control on entry and exit of financial institutions.

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 • Due to the lack of competition and government control, Nepal’s financial
system was highly repressed.
• Until the mid-1980s, there were only four banks and a few insurance
companies, all owned by the government.
• The government was substantially involved in the banks’ management and
operations.
• It imposed interest rate controls, selective credit policies, and control on
entry and exit of financial institutions. The pace of globalization,
liberalization & privatization fueled the financial sector reform in Nepal.
• The pace of financial sector reform was fueled by the wave of
globalization, liberalization, and privatization in the 1980s.
• International development agencies played a role in these reforms.
• In 1985, the government entered into its first stand-by credit agreements
with the International Monetary Fund (IMF)and initiated reforms under the
Economic Stabilization Program.
• In the same year, the government signed an agreement with the World Bank
for the Structural Adjustment Program (SAP)
• The key focus of SAP was market-oriented reforms to reduce government
interventions in the economy.
• The financial sector reform can be categorized into the following phases:
• Slow growth of the financial sector in the country
• The government faced an unprecedented budgetary deficit.
• Slow economic growth
• Structural rigidity
• Huge gap between expenditure growth and revenue growth of the
government
• Twin deficit faced by the government (budgetary deficit and current
account deficit)
• Weak portfolio performance of state-owned banks e.g. NBL and RBB
• The regulating and supervising capacity of NRB is weak.

Objectives of Financial Sector Reforms in Nepal

• Create a sound and healthy financial system.
• Strengthen central banks and their regulatory functions.
• Build strong banking and non-banking sectors.
• Improve legal and judicial aspects of the financial system.
• Improve accounting and auditing standards.
• Promote financial discipline.
• More focused program to uplift the poor
• Reduce the level of NPA (Non-Performing Assets).
• Build the capacity of NRB staff.

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 • Amendment of the Commercial Bank Act, 1974
• Removal of entry barriers for private commercial banks
• Opening of joint venture banks
• Interest rate deregulation
• Approval for ADBL to carry out commercial lending activities.
• In 1985 Enactment of the Finance Companies Act
• 1988 Reform in the treasury bill issuance process
• NRB’s introduction of prudential norms 1989
• Establishment of the Credit Information Bureau
• Establishment of Citizen Investment Trust 1992
• Amendment of the Security Exchange Act Separation of operation and
regulation in the capital market
• Establishment of the Security Exchange Board 1993
• Abolishment of the statutory liquidity ratio
• Establishment of five regional rural development banks 1996
• Enactment of the Development Bank Act 1998Enactment of the Financial
Intermediary Act
• Effort to restructure and privatize 3 state owned banks has yet to be
completed.
• NRB’s supervision capacity generally improved but its autonomy and
enforcing authority is still weak.
• Continuing efforts to restructure the state-owned banks.
• Enhance the central bank’s independence,
• Maintain sound financial sector policies are crucial to the financial sector’s
further growth and the economy’s sustainable development.
• Balance Financial Inclusion and financial literacy side by side

International Financial System

• Some external environmental factors constrain the ability of government
to regulate their economy, managers need to analyze such factors with the
brief review of a number of important international economic institutions.
• After the World War II the nations and they’re the international leaders
were very much worried about the devastated nation and their economies
which led to the two major issues establishing durable peace and
reconstructing the devastated and areas and rebuilding the economy
• The world leaders met for Bretton Woods Conference to set of following
organizations (IMF, IBRD, and ITO) known as Bretton Woods Products

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 9. Role of World Bank, ADB, AIIB, IMF in the Economic Development
of Nepal

International Organizations
• International Monetary Fund (IMF) and International Bank for
Reconstruction and Development (IBRD), generally known as the world
bank are the twin institutions founded at Bretton Woods Conference held
in 1944.
• The term ‘World Bank’ generally refers to just IBRD and International
Development Association (IDA).
• AIIB (Asian Infrastructure Investment Bank), Fron 16 January 2016,
Founding member- 57, HQ- Beijing, China

World Bank
• Board of Governors: The 189 member countries hold shares in the World
Bank. This board represents these shareholders who function as
policymakers. Governors meet once a year.
• Executive directors: 25 executive directors and 25 alternative executive
Directors (five large countries and nineteen other countries)
• President: five-year tenure, nominated by the president of the United
States, the largest shareholders of the bank

Focus of World Bank

• Human Development (education and health)
• Agriculture and rural development (irrigation and rural service)
• Environmental Protection and climate change (Pollution reduction,
establishing and enforcing regulation)
• Infrastructure (Roads, urban regeneration)
• Anticorruption and legal institutional strengthen for good governance.
• Inclusion and human rights promotion
• Sustainable development
• Drinking water and waste management

Issue and challenge of World Bank Aid in Nepal

• Supply driven than demand driven.
• More Aid in software program
• Difference between commitment and realization
• Off budgetary and off treasury flow of Official Development Aid
• Difficult terms and conditions
• Poor Alignment with national priorities
• Lack of accountability in Aid funded projects.

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 • Poor Absorptive Capacity of Aid
• Poor Negotiation Capacity

Role of World Bank for Nepal

• To finance the resource gap in implementation of periodic plan
• Meeting SDGs by 2030
• Realization of Vision 2100
• Investment in areas for trade off adverse impact of climate change
• Sustaining LDCs graduation of Nepal
• Promoting the FDIs in priority sector of Nepal
• Incisive and sustainable development
• Poverty Reduction
• Fulfilling capacity gap and financial HRD

The World Bank Group

• International Bank for Reconstruction and Development (IBRD)
• International Development Association (IDA)
• International Finance Corporations (IFC)
• Multilateral Investment Guarantee Agency (MIGA)
• International Centre for Settlement of Investment Dispute (ICSID)

IMF (International Monetary Fund)

• Established in 1994 (Because of the great depression of the 1930s)
• Founder Member: 44
• Present Total Members: 190
• Nepal: 6th September 1961
• HQ: Washington, D. C, USA

International Monetary Fund and Nepal

• UN specialized Agency
• Helps to establish workable international monetary system.
• Initial role was to provide pool of foreign currencies now role has turned
as promoting structured growth and exchange rate stability.
• Nepal joined in September 1961 which helped Nepal to overcome BOPs
difficulties and assisted Nepal in reform program through Structural
Adjustment Facility (SAF) and Enhanced Structural Adjustment Facility
(ESAF)
• IMF and World bank work in strong cooperation to support the
development of Least Development Countries like Nepal (e.g. World bank

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 provides financial support followed by the green signal of IMF in policy
font of the recipient country)

Role of IMF
• Financial sector Reform through Structural Adjustment Program (SAP)
and Structural Adjustment Facility (SAF)
• Extended Credit Facility (ECF) facility to improve negative balance of
payment e.g. Nepal government has received IMF support of Rs 39.5
billion to correct its BoP problem in F/y 2078/79 B.S.
• Technical assistance while formulating economic policies.
• Capacity development of government banks staffs and civil servants of the
country
• Providing the economic analysis report for countries like Nepal (e.g. IMF
has studied and provided policy suggestion to Nepal about impact of
Covid-19 in foreign employment of Nepal)
• Ensuring the smooth international payment system e.g. SWIFT service
• Supporting the capacity enhancement of the country for promoting exports
• Exchange rate stability
Asian Development Bank (ADB)
• The Asian Development Bank (ADB) is a regional development
bank established on 19 December 1966 (Nepal)
• The bank also maintains 31 field offices around the world to promote social
and economic development in Asia.
• From 31 members at its establishment, ADB now has 68 members.
• The ADB-Japan Scholarship Program (ADB-JSP) enrolls about 300
students annually in academic institutions located in 10 countries within
the Region.
• As of the end of 2020 Japan and the United States each hold the largest
proportion of shares followed by China, India and Australia
• Nepal is also the founder member of ADB.
• Structure resembles with World Bank

Focus Areas of ADB

• Education
• Environment, Climate Change, and Disaster Risk Management
– Environmental sustainability is a prerequisite for economic growth
and poverty reduction in Asia and the Pacific
• Finance Sector Development – The financial system is the lifeline of a
country's economy.
• Infrastructure, including transport and communications, energy water
supply and sanitation, and urban development.
• Regional Cooperation and Integration

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 • Private Sector Lending

ADB role in Nepal

• Infrastructural development
• Engineering service
• DPR EIA and other technical support
• Capacity development service
• Support in GESI (Gender equality and social inclusion)
• Support in green development.
• Major Projects run by ADB in Nepal are B.P. Highway, Koteshwor
Suryabinayak Road, Kaligandaki Hydro power Projects.
• Other education and health related expenditure

AIIB (Asian Infrastructure Investment Bank)

• Established: 16 January 2016
• Founding Member:57
• Total Members:103
• HQ: Beijing, China

• Asian Infrastructure Investment Bank (AIIB)

• Engineering service
• Huge possibility in investing in Nepalese Infrastructure development

AIIB and Nepal

Nepal is a founder member of AIIB and signed the Articles of Agreement in June
2015.

The Upper Trishuli-1 Hydropower Project is the first project in Nepal financed
by AllB.

Nepal has received a project preparatory grant as well as project financing from
AllB.

Project Preparatory Grant: The Asian Infrastructure Investment approved Project

preparatory grants for the following three projects in Nepal

Nepal: Urban Infrastructure Investment Project: Project Preparatory Grant

of US $ 1 Million.

Nepal: Power Distribution System Upgrade and Expansion Project: Project

Preparatory Grant of US $ 1 Million.

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 Nepal: Tamakoshi V Hydroelectricity Project (TV-HEP): Project
Preparatory Grant US$ 900 thousand.

For Asia Nepal which align the sector strategy of AIIB, "The Sustainable Energy
for Asia Strategy."

****Good Luck***

(*Note: Feedback Video is available on YouTube Channel:

➢ Banking Economic by Nirajan Sir.)

Note By Nirajan Raut Sir | Miras Academy