Economics and Macroeconomics
Core concepts
This domain covers national income accounting, inflation and unemployment, policy interaction, the external sector and the structure of the Nepali economy.
- GDP measures output produced within borders; GNP (GNI) measures income accruing to residents: GNP = GDP + net factor income from abroad. Large remittance inflows make Nepal's GNI materially larger than GDP.
- Three measurement routes - production, expenditure and income - must give the same total.
- Inflation is a sustained rise in the general price level, measured in Nepal by the National Consumer Price Index. Demand-pull, cost-push and imported inflation matter because Nepal imports heavily from India.
- Unemployment types: frictional, structural, cyclical, seasonal. Nepal's core problem is underemployment and out-migration rather than open cyclical unemployment.
- Balance of payments: current account (trade, services, income, transfers), capital account, financial account, with reserves as the balancing item.
- Fiscal policy is the budget; monetary policy belongs to NRB. In the simplest closed model the spending multiplier is 1/(1 − MPC).
Worked example
Nominal GDP rises from NPR 1,000 to NPR 1,200 while real GDP rises to NPR 1,080. The GDP deflator = 1,200/1,080 × 100 = 111.1, so prices rose about 11.1 percent while real output rose about 8 percent. The reasoning step is to deflate before comparing: nominal growth of 20 percent overstates real growth because part of it is price change.
Traps
Mixing GDP and GNP. Treating every current account deficit as harmful, when it may reflect capital imports. Confusing devaluation (a peg change) with depreciation (a market fall). Forgetting that remittances are transfers inside the current account.