GDP, GNP, HDI, PCI

Question 1

Concept of macroeconomic indicators

Answer 1

Economic variables and statistical metrics used to assess the overall health, performance, and trends of an economy, reflecting its socio-economic reality.

Question 2

Macroeconomic indicators relevance

Answer 2

• Economic analysis and policy formulation
• Forecasting economic trends
• International comparisons
• Evaluation of policy effectiveness
• Public insights into economic conditions for informed financial decisions

Question 3

GDP Concept

Answer 3

The monetary value of final goods and services produced by all producers within a country at a specific time, measured at market prices.

Question 4

GDP Significance

Answer 4

• Summarizes overall economic performance for easy assessment and comparison over time.
• Indicates the nation’s production capacity.
• Helps policymakers understand long-term growth patterns for effective planning.
• Facilitates comparisons of economic strength between countries (e.g., U.S. vs. China).
• Assesses the effectiveness of implemented policies.
• Serves as a base for calculating other economic metrics, such as the debt-to-GDP ratio and GDP deflator.

Question 5

Types of GDP

Answer 5

• GDP Based on Market Price: Total value of final goods and services produced within a country at market prices during a specific period.
• GDP Based on Factor Cost: Total value of final goods and services produced at production costs, excluding indirect taxes and subsidies.

Question 6

Nominal vs Real GDP

Answer 6

Nominal GDP Real GDP
At current market prices At base year prices
Includes price and quantity changes Adjusts for inflation/deflation
May not reflect true economic reality Reflects actual production volume
Shows economy size growth rate Shows actual economic growth rate
Used for economic comparisons Used for policy formulation

Question 7

Methods of GDP Measurement

Answer 7

1. Production Method:
   
   • Measures GDP by calculating market prices of all goods and services produced within a country in a year.
   • Types:
     
     • Final Product Method:
       
       • Sums the value of all final goods/services to avoid double counting.
       • Formula: P1Q1+…+PnQn
     • Value Added Method:
       
       • Measures value added at each production stage.
       • Used in Nepal to avoid double counting.
2. Income Method:
   
   • Measures GDP by summing all incomes earned in the economy, including wages, rents, interest, and profits.
   • Components:
     
     • Compensation of Employees (COE): Wages and salaries.
     • Operating Surplus (OE): Income from rent, interest, and profit.
     • Mixed Income (MI): Income from family-owned businesses and self-employment.
     • Depreciation: Asset value decrease.
   • Formula: GDP (FC) = COE + OE + MI + Depn.
3. Expenditure Method:
   
   • Calculates GDP by summing expenditures on final goods and services.
   • Components:
     
     • Private Consumption Expenditure (C): Household spending on goods/services.
     • Business Investment Expenditure (I): Spending on capital goods.
     • Government Expenditure (G): Government spending on goods/services (excludes transfer payments).
     • Net Exports (X - M): Exports minus imports.
   • Formula: GDP = C + I + G + (X - M).

Question 8

Superiority of GDP

Answer 8

• useful for policy formulation within a country
• useful to evaluate effectiveness of policy formulation
• useful for comparison with other economies
• more simple to calculate than gnp and provides actual economic figure of a country. gnp provides a figure which is hard to conceptualize
• useful for making investment decision: country ko economic standard kasto xa thaa hunxa

Question 9

Concept of GNP

Answer 9

• Gross National Product (GNP) is a measure of the total economic output produced by the residents of a country, both domestically and abroad, over a specific period, typically a year.
• GNP= GDP+ NFIA (total factor income earned from abroad-total factor payment made to abroad)

Question 10

GDP vs. GNP: Similarities

Answer 10

• Both GDP and GNP are used to measure the total economic output of a country
• Both GDP and GNP are expressed in monetary terms
• Both GDP and GNP are calculated for specific time periods, generally a year
• Both are macroeconomic indicators (part of macroeconomics)

Question 11

GDP vs. GNP: Differences

Answer 11

• Definition:
  
  • GDP: Total value of goods/services produced within a country.
  • GNP: Total value produced by a country’s residents, including abroad.
• Focus:
  
  • GDP: Economic activity within borders.
  • GNP: Economic activity of residents, regardless of location.
• Scope:
  
  • GDP: Narrow (domestic activities).
  • GNP: Broad (domestic and foreign activities).
• Net Income:
  
  • GDP: Excludes income from abroad.
  • GNP: Includes income from foreign investments.
• Use Cases:
  
  • GDP: Measures domestic performance.
  • GNP: Reflects residents’ global economic activity.
• Examples:
  
  • High Overseas Earnings: GNP > GDP.
  • Foreign Firms Domestically: GDP > GNP.

Question 12

Concept of NI

Answer 12

• National Income is the total income earned by a country’s residents from all sources, including wages, rent, interest, and profits, after subtracting indirect taxes and adding subsidies.
• Formula: NNP at factor cost

Question 13

Concept of GNDI

Answer 13

GNDI is the total income available to a nation for spending or saving, including all income earned domestically and from abroad, plus net transfers from the rest of the world.

Question 14

Concept of PCI

Answer 14

PCI = National Income / Total Population.

Question 15

Importance of PCI

Answer 15

• Economic Prosperity: Indicates living standards; higher PCI suggests better well-being.
• Comparative Analysis: Allows for performance comparison between countries, regardless of population size.
• Policy Formulation: Aids governments in crafting economic strategies.
• Investment Insights: Higher PCI signals greater consumer demand potential.

Question 16

Limitations of PCI

Answer 16

• Income Distribution Ignored: Averages can be skewed by extreme values.
• Non-Monetary Aspects Excluded: Doesn’t account for education, healthcare, etc.
• Exchange Rate and Cost of Living: Distorts international comparisons.
• Sectoral Structure Omitted: Doesn’t reflect income sources or economic contributions.
• Informal Sector Excluded: Misses significant informal economy contributions.
  Differences in purchasing power parity ignored

Question 17

How is GDP measured in Nepal? Which method is used? Standards followed. and since when is it measured?

Answer 17

• measured by National Statistics Office
• official method used is Gross Value Added method
• Started measuring GDP/NI since FY 2021/22 BS
• System of National Accounts 2008 guidelines followed while measuring GDP
• Economy of Nepal is classified into 3 units: primary, secondary and tertiary according to the guidelines of International Standards for Industrial Classification (ISIC) 4.0

Question 18

Steps of GDP measurement in Nepal

Answer 18

• estimation of value of output produced by 18 sectors
• estimate cost of raw materials
• GDP at basic price
• Add Net indirect tax then we get GDP at market price which is National output
• Add NFIA and we get Gross National Income

Question 19

Limitations of GDP

Answer 19

• Excludes Non-Market Activities: Does not account for household labor and volunteer work, which contribute to societal well-being.
• Informal Sector Ignored
• Quality of Life Factors Missing: Fails to consider health, education, environment, and leisure, which are essential for well-being.
• Income Distribution Not Reflected: Rising GDP can mask growing inequality if wealth is concentrated among a few.
• Environmental Costs Overlooked
• Measurement Complexity: Accurate calculations can be challenging, especially in countries with weak statistical systems.
• Externalities Unaccounted For: Ignores social costs like crime and pollution’s health impacts on overall welfare.

Question 20

Challenges of GDP Measurement

Answer 20

• Conceptual:
  
  • Method selection
  • Depreciation calculation
  • Double counting issues
  • Imputed value measurement difficulties
• Practical:
  
  • Weak data recording systems
  • Lack of skilled manpower
  • Large informal economy
  • Excludes personal consumption production
  • Low data literacy

Question 21

Factors Affecting GDP

Answer 21

• Consumption: Consumer spending boosts demand.
• Investment: Business investment enhances capacity.
• Government Spending: Public expenditure stimulates the economy.
• Net Exports: Trade balance affects GDP positively or negatively.
• Labor Force: Size and productivity influence output.
• Technology: Advances increase efficiency and productivity.
• Natural Resources: Access enhances production.
• Political Stability: Stability fosters confidence and growth.
• Interest Rates: Low rates encourage borrowing and spending.
• Inflation: Moderate inflation can boost spending; high inflation reduces it.

Question 22

Concept of HDI and developed by…

Answer 22

HDI measures and ranks countries based on social and economic development, introduced by UNDP in 1990 by Mahbub ul Haq and Amartya Sen. It emphasizes health, education, and income over mere economic growth.

Question 23

Components of HDI

Answer 23

1. Life Expectancy: Measures health and longevity.
2. Education: Assesses knowledge through mean and expected years of schooling.
3. Gross National Income (GNI) per Capita: Reflects economic prosperity and standard of living.

Question 24

Objectives of HDI

Answer 24

• Assess development beyond GDP.
• Guide policy formulation and evaluation.
• Compare global human development.
• Encourage investment in human capital.

Question 25

Limitations of HDI

Answer 25

• Ignores income inequality.
• Excludes environmental and social factors.
• Oversimplifies development complexities.

Question 26

HDI of Nepal (data)

Answer 26

1. HDI Value and Rank:
   
   • HDI Value (2022): 0.601
   • Global Rank: 146th
   • Nepal falls under the “Medium Human Development” category.
2. Education:
   
   • Mean Years of Schooling: 3.4 years
   • Expected Years of Schooling: 12.8 years.
3. Health:
   
   • Life Expectancy: 72.4 years.
4. Income:
   
   • Gross National Income (GNI) per Capita (PPP adjusted): $5,564.
5. Progress over Time:
   
   • HDI Growth: From 0.395 in 1990 to 0.601 in 2022, reflecting consistent improvement.

Question 27

Challenges Faced by Developing Countries Like Nepal in Overall Human Development

Answer 27

1. Inequality in access to health, education and income gaps
2. Poverty
3. High reliance on remittance: vulnerability to external shocks
4. Poor infrastructure, including transportation, communication, and energy, restricts economic opportunities and access to services.
5. Inadequate investment in public services and corruption reduce the effectiveness of programs aimed at human development.
6. Nepal and similar countries face significant risks from climate change, including rising temperatures, glacial melting, and extreme weather events.

Question 28

Ways to Improve HDI

Answer 28

• Enhance Healthcare Access: Improve healthcare infrastructure to boost life expectancy.
• Reduce Child Mortality: Invest in maternal and child health.
• Improve Educational Infrastructure: Build schools and enhance education quality.
• Increase School Enrollment: Promote policies for higher enrollment, especially for girls.
• Improve Teacher Training: Enhance educational quality through better training.
• Provide Scholarships: Offer financial aid for underprivileged students.
  
  • Foster Economic Growth: Create jobs to raise GNI per capita.
• Develop Social Safety Nets: Support vulnerable populations with welfare programs.
• Promote Gender Equality: Ensure equal access to resources for women.
• Strengthen Public Health Programs: Initiatives like vaccinations and clean water access can improve health standards.

Question 29

Features of GDP

Answer 29

This is the final monetary measure of goods and services.
++Only goods and services produced within the geographical boundaries of any country fall under its measure.
++It includes new goods and services produced in one year.
++It only measures goods and services with quantitative value.
++This includes only the final goods and services to avoid duplication/double counting.
++This does not include any money received from outside the country.
++Capital benefits and transfer payments such as unemployment allowance, pensions, etc. are not included.
++It paints a clear picture of the economic situation of any country and with its help, the size of the economy and growth rate can be estimated.
++It can be calculated in three ways: expenditure, production, and income.
++To understand the economy and the economy from a deeper perspective, it can be adjusted to inflation and population.