1.

Macroeconomic Indicators: GDP, Per Capita Income, Investment, Consumption,

Saving, Inflation, Debt Servicing, Population, Export and Import
National Income
NI simply refers to the income of the nation during the particular period of time. In other words, NI is the summation of all
personal incomes made by individuals of a nation during the particulars period of time. Symbolically,
n
National Income (NI) = ∑y
i =1
i

= y1 + y2 + y3 + ………. + yn
Where,
y = Personal income
Similarly, Froyen has defined national income as the summation of all factor payments made to the different factors of
production for their contribution in the production process.
1.1 Gross Domestic Product (GDP)
GDP is the total market value of all newly or currently produced final goods and services within the geographical boundary of a
nation during the particular period of time.
Algebraic expression under expenditure method
GDP = C + I + G + (X – M)
Where,
C = Consumption expenditure
I = Investment expenditure
G = Government expenditure
X = Export
M = Import
Algebraic expression under product method

GDP = ∑P ×Q
i =1
i i

= P1Q1 + P2Q2 + …… + PnQn

Where, Pi = Price of ith good
Qi = Quantity of ith good

Features of GDP
i) It is the money value of all final goods and services produced within a country.
ii) It includes the value of only final goods and services produced with in a year.
iii) It excludes the value of intermediate goods and services to avoid double counting.
iv) It includes only those goods which have market value and brought to the market for sale.
v) It excludes transfer payments like pension, unemployment allowances etc as they do not contribute to production
vi) It does not include capital gains
1.2 Gross National Product (GNP)
GNP is the total market value of all newly or currently produced final goods and services with domestically owned factors of
production of a nation during the particular period of time.
It can be expressed as
GNP = GDP + NFIA
Where, NFIA = Net factor income from abroad
In Nepalese context, NFIA is the factor earning made by the Nepalese citizens from abroad minus the income earned by the
foreigners in Nepal.gate income.
GDP and GNP both are measures of a nation’s aggregate income.GDP discloses aggregate income soley from domestic
production while GNP discloses aggregate income from both domestic production and foreign sources. The Choice of GDP and GNP
depends on the relative importance of net foreign factor income to the countries being compared and on the availability of the needed
GDP or GNP data.
1.3 Net National Product at Market Price (NNPMP)
NNPMP can be obtained by deducting deprecation from GNP. Mathematically, NNP at market price is expressed as:
NNPMP = GNP – D
Depreciation is the wear and tear out of capital or the capital consumption allowances (CCA).
1.4 National Income - NNP at Factor Cost (NNPFC)
National income is also known as NNP at factors cost. To calculate the value of NI or NNPFC, We have to deduct indirect taxes
and add subsidy from NNP at market price.
NI = NNPFC – IT + Subsidy
Where, IT = indirect taxes
1.5 Personal Income (PI)
PI is the income earned by the individuals or household from all possible sources before paying direct taxes (Income taxes). PI
cannot be spending as per their wish because they need to pay direct taxes. It can be expressed as:
 PI = NI – Corporate income tax – Undistributed profit – Social security contribution + Transfer Payment.
1.6 Disposable Income (DI)
DI is the income left after paying direct taxes from personal income is known as DI. In other words, DI is the part of personal
income after the payment direct taxes. It can be expressed as:
DI = PI – Direct taxes
Further,
DI = C + I or C + S
Where,
C = Consumption
S = Saving
I = Investment
1.7 Per Capita Income (PCI)
The average income of people of a country in a particular year is known as PCI. In other words, it is the ratio of national income
to the total population in that particular year.
National Income2012
PCI2012 =
Total population2012
Measurement of GDP
We have three methods of calculating NI as
1) Expenditure method
2) Product method
3) Income method
1. Expenditure method
GDP is the sum of total final consumption expenditures made by household sectors, business sectors and government sectors, gross
fixed capital formation, change in stocks and net exports.
GDP can be expressed under this method as:
GDP = C + I + G + (X – M)
Where,
C = Consumption expenditure
I = Investment expenditure
G = Government expenditure
X = Export earnings
M = Import expenses
X-M=Net exports
In order to compile GDP by using this method requires details of private consumption data in spite of others that still accounts
more than 88% of total consumption.It should bt noted here that the share of total consumption itself to the GDP as high as above
85%.In absence of such details there may be questions in the accuracy of the estimation of GDP by expenditure approach.However,
the CBS has been compiling GDP from 1994 based on this approach particularly the private consumption with the help of Nepal
Living Standard Survey and Houseehold Budget Survey.
Components of expenditure method
1. Consumption expenditure (C)
It is the expenditure made by household sectors on final goods and services. Further it can be dived into three sub headings as
a) Durable: It includes the expenses made on durable goods like TV, refrigerator, furniture etc.
b) Non durables: It includes the expenses made on non – durable goods like bread, milk, petrol, vegetables etc.
c) Services: It includes the expenses made on services like water bills, telephone bills, college fees, bus fare, etc.
2. Investment Expenditure (I)
It is the expenditure made by the business sectors which can be categorized into three sub headings.
a) Residential investment: In includes investment made on buildings, apartment, housing, etc.
b) Non – Residential investment: It includes the investment made on capital goods like machinery, tools, equipment etc.
c) Inventory investment: It includes the investment made on stocks like showrooms, storerooms etc.
3. Government expenditure (G)
It is the expenditure made by the government for different purposes like: developmental works, defense, constitutional organs
etc. We can broadly divide into two sub headings:
a) Government expenditure made on consumption
b) Government expenditure made on investment
4. Net export (X – M)
Net export is the difference between export earnings and import expenses. Export must be included in GDP because those
exported goods and services to other nation are produced within the geographical boundary of a nation. However imports should
be excluded from GDP since those goods and services which are imported to the nation are produced outside the geographical
boundary of nation.
2. Product Method
It is also known as value added or output method. In this method GDP measured in the form of total product obtained from each
economic sector such as primary sectors, secondary sectors and tertiary sector.This method has been used for the compilation of GDP
in Nepal.
GDP can be expressed under this method as:
GDP = ΣPiQi
 = P1Q1 + P2Q2 +……… + PnQn
Where,
Pi = Price of ith goods
Qi = Quantity of ith goods.
Alternatively,
GDP = Total product of (Primary sector + Secondary sector + Tertiary sector)
Components of Product Method
1. Primary sector
It includes agro products, fishery, forestry, mining and others.
2. Secondary sector
It includes manufacturing, construction, electricity, water and gas supply and others.
3. Tertiary sector
It includes banking and insurance, transportation and communication, trade and commerce and other services.
This method is very popular in developing countries. Nepal also adopts this method to estimate the value of NI.
However, this method is not free from the problems of double counting. To overcome this problem we have two methods as:
a) Final product method: In this method we include only the value of final goods and services refer to the goods and services
those are used and consumed by end–users or consumers.
b) Value added method: In this method the value added at different stage of production are calculated and then added to
estimate the value of NI.
Mathematically, Value added = Value of output – Cost of intermediate goods
This method can be understood with the help of the table below
Stage of Cost of intermediate goods Gross Value
Producer Value of of output (A)
production (B) (A – B)
Farmer Wheat 2000 0 2000
Miller Flour 2500 2000 500
Baker Bread 3200* 2500 700
Total 7700 4500 3200**
* At final product method
** At value added method
Suppose that, there are three stages in bread production. A farmer produces wheat equal to the value Rs. 2000. Hence, Rs.
2000 is the value added by the farmer. The miller grinds the wheat and sells flour to the baker at Rs. 2500. Hence, the value
added by the miller is Rs. 500 (Rs. 2500 – 2000). Similarly, the baker sells bread at Rs. 3200 and adds the value equal to
Rs. 700 (3200 – 2500). The sum of value added in each stage of production is Rs. 3200 (2000 + 500 + 700). Therefore Rs.
3200 is the gross value added to the economy.
3. Income method
GDP is the sum of the income received by all the factors of production. It is also known as factor payment method. It considers
payment made to all factor of production of the country in the forms of wages, rent, profit and interest.
GDP can be expressed under this method as,
GDP = W + R + P + I + SA + NIT
Where, W = Wages and salaries
R = Rent
P = Profit
I = Interest
SA = Statistical adjustments
(Corporate income taxes, dividends, undistributed corporate corporate profits)
NIT = Net indirect taxes
Components of income method
1. Wages and salaries (W)
It includes the wages and salaries received by labour during the year and supplementary benefits like tips, bonuses, provident
fund, overtime, etc.
2. Rent (R)
It includes the rent of land, factory, houses, apartment, buildings, etc.
3. Profit (P)
It can be divided into heading as:
a) Proprietor income: It includes the profit earned by sole and partnership business firm.
b) Corporate profit: It includes profit earned by joint stock company. Further it can be split as:
i) Dividend
ii) Undistributed profit
iii) Corporate profit tax
4. Interest (I)
It includes the interest income received by the people of the country for the capital.
5. Depreciation (D)
It includes depreciation made by each form for the repairs and maintenance cost of capital goods.
6. Net indirect taxes (NIT)
It is the difference between indirect tax and subsidy.
 NIT = Indirect taxes – Subsidy
Sectoral Accounting
In Nepal, GDP has been compiled based on UN System of National Accounts, 1968. The sectoral divisions are adopted from the
Standard International Classification (ISIC). In Nepal 9 sectors have been identified and accounted so far.
1. Agriculture, Fisheries and Forestry
2. Mining and Quarrying
3. Manufacturing
4. Electricity, Gas and Water
5. Construction
6. Trade, Restaurant and Hotels
7. Transport, Communication and Storage
8. Finance, Insurance and Real State
9. Community and Social Services
The SNA 1968 comprises only 9 components in GDP while there are 17 major industrial divisions in ISIC of all economic
analysis under SNA,1993.Major groups consists of:
- Agriculture, hunting and forestry
- Fishing
- Mining and quarrying
- Manufacturing
- Electricity, gas and water supply
- Construction
- Whole sale and retail trade, repaire of major vechiles etc.
- Hotels and restaurants
- Transport, storage and communication
- Financial intermediation
- Real state, renting and business activities
- Public administration and defense, compulsory and social security
- Education
- Health and Social Work
- Other community social and personal service activities
- Private household with employed bodies
- Extra territorial organization and bodies
GDP deflator
GDP deflator measures relative changes in current level prices in comparison to the level of prices in the base year. In other
words, it is the ratio of nominal GDP in a given year to real GDP of that year. The formula for calculating the GDP deflator is
relatively simple. The calculation requires information regarding the real GDP and the nominal GDP. It is calculated by dividing
nominal GDP by real GDP and multiplying it by 100. The following formula shows how GDP deflator is calculated.
Nominal GDP
GDP deflator = × 100
Real GDP
Nominal GDP and real GDP
National GDP is defined as the GDP evaluated at current market prices. Therefore, nominal GDP includes all of the changes in
market prices that have occurred during the current year due to inflation or deflation. Inflation is defined as a rise in the overall price
level, and deflation is defined as a fall in the overall price level. In order to remove effect of changes in the overall price level, real
GPD is used.
Real GDP is defined as the GDP evaluated at the market prices of any base year. Dividing the nominal GDP by the GDP deflator
and multiplying it by 100 would then give the figure for real GDP. The formula to calculate real GDP is as follows:
Nominal GDP
Real GDP = × 100
GDP deflator
Problems/Difficulties in the measurement of GDP (National Income)
Some of the major difficulties of NI measurement can be pointed out as:
1. Double Counting
It is one of the major problems of GDP accounting. Only the value of final goods and services should be included in GDP
accounting. However, it is very difficult to distinguish between final goods and intermediate goods. Same goods can be regarded
as a intermediate as well as final goods. for instance: what consumed by farmers themselves is final goods whereas wheat used to
make flour is intermediate goods. So, there are possibilities of double counting which overestimate the value of NI.
2. Non – marketed goods
The problem of assigning values to the non – marketed goods and services presents a difficulty in NI measurement. In order
developed countries, wages provided in kinds, services provided free of cost, etc. would underestimate the value of NI.
3. Household services
NI measures the goods and services that come into the market. But goods produced and services rendered in the households, are
not included in the valuation of NI and estimation of such services in terms of money value may be extremely difficult. But it
crates biases in international comparisons and the actual production is underestimated.
4. Transfer payments
 A large number of transactions take place in the economy, which do not go against any productive services such as transfer
payment (e.g. widow allowances, unemployment allowances etc.) and which should be deducted from the value of NI. Accuracy
in the omission of such transfers is difficult in the estimation of NI.
5. Changes in price level
Another difficulty in calculating national income is that of price changes. When the price level increases national income also
rises even though the production might have decreased.
6. Illegal income
Income earned through illegal activities (such as bribe, gambling, sale of narcotics etc.) is not included in NI and the NI may be
underestimated.
7. Estimation of depreciation
Estimation of depreciation is also a very difficult task. Depreciation of a piece of capital can be estimated at its original cost
(historic cost) or at its replacement cost. However, the usual practice on the part of the firms is to base their depreciation
provisions on the original cost of their assets.
8. Non – availability of data
The non-availability of data, particularly in the under-developed countries, on consumption and expenditures for the estimation
of national income by expenditure method is a serious bottleneck in the estimation of true national income
1.8 Investment
Generally investment means buying of existing shares, bonds or debentures of a public limited company. But buying of existing
shares, bonds or debentures are only the transfer of assets from one person to another. Investment is the new addition to the stock of
physical capital such as plant, machines, and new factories and so on that creates income and employment. Therefore investment
means the addition to the stock of physical capital.In conomics, investment means the new expenditure incurred on addition of capital
goods such as machines, tools, equipment, building etc.
To Prof. Keynes, an investment is an additional supply of capital in order to increase quantities of capital goods aiming at
increasing income and production. Prof. Keynes has described investment from the side of real investment. This real investment is a
Net Investment (NI). When we deduct Replacement Cost (RC) from Gross Investment (GI), we get NI.
Or, NI = GI – CCA
This net investment is an additional increment in capital goods is order to increase production. It includes public works like new
industry, machines, tools, bridges, dams, roads, houses, factory buildings, etc. and net foreign investment, shares of new companies,
stocks or inventories, other unused goods, etc.
Types of Investment
1. Gross and Net Investment
Gross investment means aggregate investment. It includes net investment as well as depreciation. It refers to total expenditure on
capital goods in the given period of time. Net investment is the difference between gross investment and depreciation. So, net
investment occurs due to increase in capital stock. The relation between gross investment and net investment is expresses as
GI = NI + Depreciation
Therefore, NI = GI - Depreciation
Where,
NI = Net investment
GI = Gross investment
2. Private and public investment
The investment which is made by private sector or individual taking main objective to maximize the profit or direct benefit is
private investment. In other hand, public investment means the investment which is made by public or government sectors to
increase public utilities. To fulfill the demand of social overheads, public investment plays the crucial role. This type of
investment has indirect benefits, because it stressed public benefits than that of profit maximizing. Investment in construction of
roads, bridges, hospital educational institution etc is the example of public investment.
3. Ex-ante and Ex-post investment
The estimated or planned investment is called ex-ante investment. The actual investment or the realized investment is called ex-
post investment. These are also known as estimated and actual investment.
4. Autonomous and induced investment
Generally investment can be classified into two types. They are autonomous and induced investment.
Autonomous investment: Autonomous investment refers to the investment which doesn't depend upon changes in the
income level. This investment generally takes place in houses, roads, public undertakings and economic infrastructure such
as water supply, electricity, transport and communication. Most of the autonomous investment is undertaken by the
government. Autonomous investment can be explained graphically as follows:

Induced investment: Induced Investment is that investment which is affected by the changes in the level of income. Induced
investment depends upon the level of income. Higher income levels, higher will the induced investment. The induced
 investment is income-elastic. In general induced investment is made by the private sector with profit motive. Graphically this
investment is explained as follows:

Determinants of Investment
1. Short Run factors
Marginal efficiency of capital (MEC): Marginal efficiency of capital is the expected rate of profit. An investor expects
profit for the use of one additional unit of capital. This expectation is called the marginal efficiency of capital (MEC) or the
expected rate of profit. Higher the MEC higher the inducement to invest and lower the MEC lower the inducement to
invest.
Expected demand and price: If the entrepreneurs expect the demand for the product to rise and their prices to rise, then
the investment will be high and the investment will increase. If the demand is likely to decline, the investment as well as
investment will be low. So expected future demand and price also measures short run investment.
Propensity to consume: The demand for the consumer goods as well as capital goods increase in the economy when the
propensity to consume of the society increase. It means the increase in the propensity to consume helps to increase in
marginal efficiency of capital and investment. The increasing demand impacts positively to the investment of
manufacturing company as a result of that demand of capital goods and consumption goods increases.
Change in income: The increase in income leads to increase in investment and marginal efficiency of capital and vice-
versa. Rise in income will stimulate investment and fall in income will discourage the investment.
Taxation: Marginal efficiency of capital and investment is affected by the rates of taxation. Higher rate of taxes adversely
affect the marginal efficiency of capital and investment. Reductions of direct and indirect taxed tend to rise MEC and
encourage investment.
State of business confidence: During the period of prosperity, the rates of profit on future investment are overestimated.
The entrepreneurs are encouraged to invest more in the economy. Hence MEC and investment increase in the time of
prosperity. But, during the period of depression, the MEC and investment declines.
Political stability: For the investment, political stability is the essential condition. If there is stable government then
investors become ready to invest in the economy. Otherwise frequently changing government policies and political
instability discourage the investors as a result of that investment decreases.
2. Long Run factors
Economic Policy: MEC and investment is influenced by long-run economic policy. If the government adopts a policy to
encourage private investment, marginal efficiency of capital will be high and investment will be high and investment will
rise. Similarly, if the government adopts the policy of nationalization of industries, the MEC and investment will low.
Population: The high growth rate of population increases the demand for consumer as well as capital goods. This leads to
increase in investment. The decrease in population decreases the marginal efficiency of capital and investment. So, the size of
population also plays important role in investment in long run.
Technological progress: Scientific inventories and technological changes lead to the development of new methods of
production, which have favorable effect on marginal efficiency of capital and investment. Efficient technology is responsible
to improve quality as well as productivity which positively impact to the investment in long run. Thus, the improvement in
technology increases the new investments.
Supply of capital equipment: If the existing stock of capital equipment is sufficient to meet the increased demand, there will
be no new investment. If the existing capital equipments are fully utilized, there will be possibility of new investment. So,
utilization of supply of capital equipment also measures long run in investment.
Development of new areas: If government is going to invest in to the different infrastructure sector and economically
backward sectors, then volume of long run investment increases. The development of new areas leads to heavy investment in
transport, communication, electricity and construction of residential and commercial buildings.
If there is developed infrastructure, it motivates to the investors for the further investment in new sector such as investment in
business, industries, as well as other economically viable sectors.
New products: If new products are going to lunch in the market and there is probability of increasing demand of such
products, then it accelerates the investment in such new project. Due to high demand of such products investment also
becomes high to earn excessive profit. In such situation both marginal efficiency of capital and productivity of business also
increase.
Liquid assets: The availability of liquid assets with investors encourages investment in new or existing project. Otherwise if
there is probability of further investment in some existing or any new sector, then certainly long run investment increases in the
economy.
Marginal Efficiency of Capital
J.K. Keynes first introduced the term marginal efficiency of capital (MEC) in 1936. According to him, it is an important
determinant of autonomous investment. The marginal efficiency of the capital is the highest rate of return expected from an additional
unit of capital asset over its cost. In the words of Kurihara, "It is the ratio between prospective yield of additional capital goods and
their supply price." For example if the supply price of capital assets is Rs. 40000 and its annual yield is Rs. 4000 then marginal
efficiency of capital becomes 4000/40000*100 = 10%. Thus MEC is the percentage of profit expected from given investment. The
amount of money that any entrepreneur invests on capital goods such as machine, which produce some goods, is known as supply
price. This is also known as replacement cost.
The investment on machines, which is used in production, is known as proposed investment. This kind of investment is expected to
earn income in addition to the amount separated for depreciation fund is known as expected income and it is known as prospective yield.
If a capital project costing C is expected to generate an income stream over a number of years as R1, R2, R3……Rn, then MEC of
the project van be computed by using the following formula:
C = R1/(1+r)+R2(1+r)2 + R3/(1+r)3+……….+Rn(1+r)n
For example, suppose that an investment project costs C = Rs.1000 million and is expected to yield an annual stream of income
as R1 = Rs.500 million, R2=Rs.400 million, R3 = Rs.300 million, R4=Rs.200 million, and R5 = Rs.100 million. By applying the
formula given in equation above, we get rx = 20.27%
The measurement of marginal efficiency of capital can be explained with the help of a mathematical example. Suppose it costs
2000 rupees to invest in certain machinery and the life of the machinery is two years. In the first year the machinery is expected to
yield income of Rs. 1100 and in the second year Rs.1210. We can calculate the value of r or the marginal efficiency of capital with the
help of above formula.
Supply Price = Discounted prospective yields
C = R1/(1+r) + R2(1+r)2
200 = 1100/(1+r) + 1210 (1+r)2
On calculating the value of r in the above equation it is found to be equal to 10. The marginal efficiency of capital is equal to 10
percent. If we put the value of r in the equation, we get,
2000 = 1100/110+1210/(1.10)2
= 1000+1000 = 2000
Decision rule: Once MEC or IRR is estimated, investment decision can be taken by comparing MEC with the market rate of interest
(r). The general investment decision rules are:
- If MEC > r, then the investment project is acceptable.
- If MEC = r, then the project is acceptable on non profit considerations
- If MEC < r, then the project is rejected.
Investment Demand Curve
Investment or inducement to invest depends upon two factors: (a) expected rate of profits which is also known as marginal efficiency of
capital (MEC) and (b) rate of interest. Thus investment is determined by marginal efficiency of capital and the rate of interest. The rate of
profit expected from an extra unit of a capital asset is known as marginal efficiency of capital. Investment is possible only if the marginal
efficiency of capital is higher than the market rate of interest. Generally the rate of interest is assumed to be constant. Therefore the volume of
investment is determined by the marginal efficiency of capital. The marginal efficiency of capital diminishes.

As shown in the figure when the rate of interest is Or1, the marginal Efficiency of Capital becomes equal to the rate of interest at
point A and OM level of investment is determined. When rate of interest falls to Or2, the new equilibrium point B is determined where
the marginal efficiency of capital is equal to the rate of interest. In this cause, the level of investment increases to OM2, Similarly if the
rate of interest falls to Or3, the Marginal Efficiency of capital is equal to the rate of interest at point C and the investment increases to
OM3. The equilibrium level of investment is determined at the point where MEC becomes equal to the current rate of interest. Thus, the
inducement to invest depends on MEC and the rate of interest.
1.9 Consumption
The use of goods and services by consumers to satisfy their wants is called consumption. The term consumption indicates
expenditure on consumption. There is a close relationship between consumption and income. Consumption function refers to the
income consumption relationship. In other words, it is the functional relationship between total consumption and total income. It
shows consumption expenditure varies with the given changes in income. There is positive relationship between consumption and
income. It means higher the income, higher will be consumption and vice versa. Consumption function is also known as the
propensity to consume.
When the income increases they become able to save some amount after meeting their minimum requirements. The amount not
spent on consumption is called saving. When income increases both consumption and saving increase but a fixed part of consumption
is replaced by saving. Therefore, when income increases consumption increases in a proportion to less than an increase in income. The
relationship between income and consumption is presented in a table below:
 Consumption Function (in Rs. million)
National income (Y) Total consumption (C)
0 30
50 50
100 70
150 90
200 110
In the given table, at 0 level of income consumption is 30 million. In such a situation, the government either uses its past savings
or borrows loans. The expenditure from past savings is called dissavings. When income equal to Rs. 50 million, consumption
expenditure of the government has also increased from Rs. 30 million to Rs. 50 million and income and expenditure have become
equal to each other. This situation is also called the Break-even point. In the given table, national income is increasing gradually even
after the break-even point and the total consumption expenditure is also increasing. This consumption expenditure is increasing at a
diminishing rate or this increase is less than in proportion to an increase in national income. Therefore, the consumption function
curve slopes upwards to the right. The relationship between national income and consumption expenditure is presented in a figure
below:
C = f(Y)

B
45°
0 X
Income (Y)

Concept of consumption function

In the given figure, income is measured along X-axis and consumption along Y-axis. C is the consumption curve and C = f(Y) is the
joint curve showing the relationship between income and consumption. C = f(Y) curve is drawn on 45º angle and is started from zero. But
the total consumption expenditure starts above from the zero i.e. Y-axis. It shows that total consumption expenditure never becomes zero
when national income is zero. When national income increases consumption also increases. At point B they become equal. Upto point B,
C curve lies above C = f(Y) curve but after point B, C = f(Y) curve lies above C curve. It shows that when there is an increase in income,
consumption expenditure also increases but less than in proportion to an increase in income. It is because when income increases people
start to save some part of it. This saving is expressed as Y - C = S. The amount of saving increases as much as the gap between C = Y and
C curve widens. Thus, this consumption function shows that consumption is a part of income and it increases in a proportion less than an
increase in income. This is called the propensity to consume because consumption depends upon habits and tendencies of the people.
Classification of Consumption Function
The consumption function is classified into (a) Average Propensity to Consume and (b) Marginal Propensity to Consume.
a. Average propensity to consume (APC)
The ratio of total consumption to national income is called the Average Propensity to Consume. This is also expressed as a
proportion of consumption to any fixed level of income in any fixed period of time. This proportion is obtained by dividing
consumption expenditure by the amount of income. Therefore, the Average Propensity to Consume is written as APC = C/y.
Here,
APC = Average Propensity to consume,
C = Consumption,
Y = Income
Consumption completely depends upon income. Higher the level of income lower the average propensity to consume and lower
the level of income higher the average propensity to consume. The average propensity to consume also expresses the proportion
of average propensity to save. The average propensity to save is written as.
APS = 1 - APC.
Here,
APS = Average propensity to save.
b. Marginal propensity to consume (MPC)
The mutual relationship between changes in total national income and total consumption expenditure is called the marginal
propensity to consume. It can also be expressed as a proportion of a change in consumption expenditure as a result of a change in
the level of income in any fixed period of time. This proportion can also be obtained by dividing a change in consumption
expenditure by a change in income. Therefore, the marginal propensity to consume is written as MPC = ∆C / ∆Y.
Here,
MPC = Marginal propensity to consume,
∆C = Change in consumption expenditure,
∆Y = Change in income.
 Higher the level of income lower the marginal propensity to consume and lower the level of income higher the marginal
propensity to consume. But this marginal propensity to consume is assumed as constant in the short-run. Generally this marginal
propensity to consume is greater than zero and less than one or MPC > 0 < 1.
The MPC of the poor is higher and that of the rich is lower.
APC and MPC
APS or S/Y MPS or ∆S/∆ ∆Y
Y C APC or C/Y MPC or ∆C/∆ ∆y
1 – APC 1 – MPC
0 30 - - - -
50 50 50/50 = 1 or 100% 0 20/50 = 0.4 0.6
100 70 70/100 = 0.7 or 70% 30% 20/50 = 0.4 0.6
150 90 90/150 = 0.6 or 60% 40% 20/50 = 0.4 0.6
200 110 110/200 = 0.55 or 55% 45% 20/50 = 0.4 0.6
In the given table, both APC and MPC are presented. APC expresses APS and MPC expresses MPS. When we deduct APC from
1, we get APS. In the same way, when we deduct MPC from 1 we get MPS or
APS = 1 - APC and
MPS = 1 - MPC

Determinants of Consumption Functions

The determinations of consumption function can be dividend into following types:
1. Subjective factors
Subjective factors are endogenous or internal to economic system. Subjective factors determine the form of consumption
function (i.e., the slope and position of consumption curve.) According to Keynes, the subjective factor which determine the
slope and position of the consumption function include; Psychological characteristic of human values, and social practices and
institutions and arrangements.
a. Psychology of human nature: There are seven motives which lead the individuals to abstain from spending out of their
incomes. These motives are as follows:
i. To build the reserve for unforeseen contingencies such as death, diseases, etc.
ii. To provide for anticipated future need such as retirement, future higher studies of children, etc.
iii. To enjoy an enlarged future income by investing funds out of current income,
iv. To enjoy a sense of independence or not to depend on others,
v. To possess power or to get higher social or political status,
vi. To secure enough funds to carry out speculation because speculation is an essential part of money market,
vii. To satisfy purely miserly nature.
b. Institutional arrangements: With respect to the behavior of business corporations and governments, Keynes listed the
following four motives for accumulation:
i. Enterprise, i.e., the desire to do big things or to expand business
ii. Liquidity, i.e., the desire to face emergencies successfully,
iii. Rising income, i.e., the desire to demonstrate successful management, and
iv. Financial care, i.e., the desire to ensure adequate financial provisions against depreciation and obsolescence and
discharge debt.
2. Objective factors
The objective factors are exogenous or external to the economic system. They undergo into rapid change and cause shifts in the
consumption function (or curve).
The importance objective factors are as follow:
a. Change in wage level: If the wage rate rises, the consumption function shifts upward. If, however, the rise in wage rate is
accompanied by more than proportionate rise in prices, the real wage rate will fall and the consumption function will shift
downward. A cut in wage rate also shifts consumption curve downward.
b. Distribution of income: Consumption function not only depends upon income, but also on the way in which the income is
distributed. Greater the inequality in income distribution, lower will be the propensity to consume; greater the equality in
income distribution, higher will be the propensity to consume. As a general rule, the marginal propensity to consume of the
poor is higher than that of the rich. Thus, a more equal distribution of income will raise consumption function because the
poor with their increased income will increase their consumption expenditure.
c. Windfall gains and losses: Windfall gains and losses due to unexpected changes in the stock affect the consumption level
accordingly. Windfall gains tend to rise the propensity to consume, while windfall losses are likely to shift the consumption
function downward.
d. Fiscal policy: Changes in the fiscal policy also affect the propensity to consume. Heavy indirect taxation, rationing and
price control adversely affect the propensity to consume. Progressive taxation shifts the consumption function upward by
bringing about more equitable distribution of income.
e. Changes in expectations: Changes in future expectations also affect the consumption function. For example, the expectation
of out-break of war or fear of shortage of goods and rising prices in the near future will induce the people to purchase the
goods much in excess of their current needs. This will shift the consumption function upward.
f. Financial policies of corporations: Business policies of the corporations with regard to income retention, dividend
payments and re-investment affect the propensity to consume of the equity holders. If the corporations keep more money in
reserves and distribute less of their profits as dividends, it will reduce the income of the shareholders and the consumption
function will shift downward.
 g. Holding of liquid assets: The consumption function is also influenced by the holding of liquid assets (like cash balances,
saving accounts, government bounds, etc.) in hand, they will tend to spend more out of their current income and thus their
propensity to consume will increase. An increase in the real value of such assets, as a result of a general fall in the prices,
also raises consumption.
h. Dusenberry hypothesis: Dusenberry makes two observations regarding the factors determining the consumption function:
i. Past living standard: Consumption expenditure of an individual depends not on his current income but also on the
standard of living enjoyed by him in the past. As income falls from the previous level, consumption also falls but not to
the full decrement of income because people fail to adjust their expenditure according to the new circumstances.
ii. Demonstration effect: The second observation is in terms of demonstration effect, according to which the
consumption standards of the poor are greatly affected by the consumption standards of the rich.
i. Attitude towards thrift: If the people regard saving as a great virtue and give more importance to future consumption than
present consumption, they will tend to save more and consume less. As a result, the consumption function will shift
downward.
j. Social security: Making contribution to various social security schemes, such as, provident fund, life insurance, etc., reduce
the disposable income of the people and to that extent the consumption expenditure falls.
k. Installment buying: Facilities of installment buying on credit increase propensity to consume because they encourage
people to purchase. Even the costly goods are purchased which they otherwise could not purchase. The system of
installment buying is very popular in advanced countries and is also becoming popular in developing countries like Nepal.
l. New products: Introduction of new goods in the market, leads to increase in consumption expenditure. Advertisements and
other sole promotion methods also promote consumption. For example, introduction of new mobile leads to increase in
consumption expenditure of people.
1.10 Saving
Saving is a part of income which is not consumed. According to Prof. Keynes, "…….. saving means the excess of income over
expenditure on consumption." Higher the level of income, greater the saving and lower the level of income smaller the saving. On the
other hand, higher the consumption expenditure smaller the saving and lower the consumption expenditure greater the saving.
Therefore, saving may be written as S = Y - C.
Here,
S = Saving
Y = Income
C = Consumption expenditure
Saving is a positive part of income, not spent on consumption. It has a positive and proportional relationship with income. The
functional relationship between saving and income is known as saving function. It can be written as:
S = f(y).
Here,
S = Saving,
f = function,
y = Income
Saving is a dependent variable and income is an independent variable.
Consumption Function-Schedule
Income (Y) Consumption(C) Saving (S)(S=Y-C)
100 100 0
200 180 20
300 250 50
400 310 90
500 360 140
600 400 200
The saving function or the functional relationship between saving and income is presented in a figure below:
Y
Saving curve S

A
O X

Income
S

Saving function
In the given figure, SS is the saving curve, OX axis measures income and OY axis saving. The figure shows that saving increases
with an increase in income. Point A is a break-even point. Point A is break even point because there is neither saving nor dissaving.
To the left of point A, there is dissaving and after or to the right of point A, there is saving. Thus, the saving curve SS shows various
levels of saving at various levels of income. Saving curve is the increasing function of income.
Classification of Saving Function
There are two types of saving function:
1. Average propensity to save (APS)
 The ratio of total saving to national income propensity to save. It is also expressed as a proportion of saving to any fixed income
in any fixed period of time. This proportion is obtained by dividing total saving by national income. Therefore, the average
propensity to save is written as APS = S/Y.
Here,
APS = Average propensity to save,
S = Saving,
Y = Income.
Saving completely depends upon income. Higher the income higher the average propensity to save and vice versa. Therefore, the
average propensity to save may also be written as:
APS = 1 - APC
or, APC + APS = 1
2. Marginal propensity to save (MPS)
The ratio of relationship change in saving to change in national income called the marginal propensity to save. It can also be
expressed as a proportion of a change in saving to a change in income in any fixed period of time. This proportion can also be
obtained by dividing a change in saving by a change in income. Therefore, the marginal propensity is save is written as MPS =
∆S/∆Y.
Here,
MPS = Marginal propensity to save,
∆S = Change in saving,
∆Y = Change in income
Higher the level of income higher the marginal propensity to save and vice versa. This marginal propensity to save may also be
written as:
MPS = 1 - MPC
or, MPC + MPS = 1
Here,
MPS = Marginal propensity to save,
MPC = Marginal propensity t consume.
Determinants of Saving
Saving is a positive function of income. Higher the income higher the saving and vice versa. Thus, the nature of consumption
expenditure and saving are in opposite direction. Other things remaining the same, when consumption expenditure rises saving falls
and when saving rises consumption expenditure falls. The first and important determinant of saving is income. Besides, other
determining factors of saving are as follows:
1. Desire for liquid money
To desire for liquid money to face difficult situations and to fulfil sudden wants people save more.
2. Foresight
To desire for liquid money for old age, ill health, looking after children, education, dependents of the family, etc. people save
more and vice versa.
3. Calculation of income
In order to calculate the amount of profit, interest, etc. in income, people want to save more.
4. Improvement in living standard
To improre their living standard they increase their saving.
5. Self-dependence
More saving is for their self dependence.
6. Enterprise
To desire for liquid money to run, to enhance and to expand a business and to manage financial resources.
7. Pride
To desire for liquid money to raise a self-pride being wealthier and to fulfil the desire to leave property to the member of the
family at the time of death.
8. Avarice and misery
Some persons are by nature miser and greedy. Such persons desire to hoard more liquid money and desire to increase saving due
merely to their misery without having any special objective. So, they save more and more.
Other factors:
● Rate of interest
● No. of population
● Distribution of income price level
● Development of banking sector
● Government's fiscal policy
● Social security system etc.
1.11 Inflation
Meaning
In general, inflation means a substantial and rapid rise in general price level, which causes a decline in the purchasing power of
money. But in broadly speaking, the phenomenon of inflation has been understood in three ways;
i) In Common view
ii) In Keynesian view
iii) In Modern view
 In common view, inflation is the phenomenon of rising prices and it is a monetary phenomenon.
In Keynesian view, it is the phenomenon of full employment. Inflation is the result of excess aggregate demand over the
available aggregate supply and true inflation starts only after the full employment. The rise in price before the full employment is
semi-inflation or reflation or bottleneck inflation.
In modern view, two types of inflation can be observed. They are demand pull inflation and cost push inflation. In demand pull
inflation, inflation and falling unemployment are supposed to go together. In cost push inflation, inflation and rising unemployment
occur simultaneously.
Definitions
According to Cowther, "Inflation means a state in which the value of money is falling i.e. prices are rising."
In the words of Coulborn, "Inflation is too much money chasing too few goods."
According to Edward Shapiro, "Inflation is a persistent and appreciable rise in the general level of prices."
In the words of Friedman," Inflation is always and everywhere a monetary phenomenon ....... and can be produced only by a
more rapid increase in the quantity of money than output."
Features of Inflation
1. Inflation is purely a monetary phenomenon
2. Inflation is a process of rising prices not high price
3. Inflation is not a temporary fluctuation in price but is a sustained and appreciable increase in prices.
4. Inflation means the increase in general price level, not the increase in individual prices
5. In inflation, value of money decreases but prices of goods and services increase.
6. Inflation occurs due to the high quantity of money
7. True inflation starts only after full employment
8. Inflation appears when aggregate demand exceeds aggregate supply
9. Inflation is statistically measured in terms of percentage increase in the price index per unit of time
10. Inflation may be demand pull or cost push
Causes of Inflation
Broadly speaking, inflation is caused by two factors-due to the increase in effective demand and due to the rise in cost of
production. The inflation caused by increase in demand is known as demand pull inflation. On the other hand, the inflation caused by
increase in cost of production is known as cost push inflation. There are many other factors within this two reasons which are
explained as:
1. Demand pull inflation
Demand pull or excess demand inflation is a situation often described as "too much money chasing too few goods." According to
this theory, an excess of aggregate demand over aggregate supply will generate inflationary rise in prices.
There are two theories of demand pull inflation
a) Monetarist view
b) Keynesian view
The theory states that prices rise in proportion to the increase in the money supply. Given the full employment level of output
doubling the money supply will double the price level. So, inflation proceeds at the same rate at which the money supply
expands. In this analysis the aggregate supply is assumed to be fixed and there is always full employment in the economy.
Naturally, when the money supply increases it creates more demand for goods but supply of goods cannot be increased due to the
full employment of resources. This leads to rise in prices. But it is a continuous and prolonged rise in money supply that will lead
to true inflation.
a. Monetarist view: The monetarist theory of demand pull inflation is based on the quantity theory of money. According to
this theory, inflation is always a monetary phenomenon. The higher the growth of nominal money supply, the higher the
rate of inflation. Modern quantity theorists regarded money supply as the result of excessive increase in the money supply.

The quantity theory version of demand pull inflation is shown in the given diagram.
A
Y LM

E
R LM1

E1
R1
Is

0 X
YF Y1
Y S
B
E1
P1

E
P
Dt
D

0 X
YF Y1
Income

suppose that money supply is increased at a given price level P as determined D and S curves in Panel (B) of the figure the
initial full employment situation at this price level is shown by the interaction of IS and LM curves at E in panel 'A' of the
figure where R is the rate of interest and YF is the full employment level of income. Now with the increase in quantity of
money the LM curve shifts rightward to LM1 and intersects this curve at E1. Such the equilibrium level of income rises to Y1
 and the rate of interest is lowered to R1. As the aggregate supply is assumed to be fixed, these is no change in the position of
IS Curve.
Consequently, the aggregate demand rises which shift the D curve to the right to Dt and thus excess demand is created
equivalent to EE1(=YFY1) in panel (B) of the figure. This raises the price level, the aggregate supply being fixed as shown by
the vertical portion of the supply curve S. The rise in the price level reduces the real value of money supply so that the LM1
curve shifts to the left to LM. Excess demand will not be eliminated until aggregate demand curve D1 cuts the aggregate
supply curve S at E'. This mean a higher Price level P1 in Panel (B) and return to the original equilibrium position E in the
upper Panel of figure where IS curve cuts LM curve. The result then is self-limiting, and price level rises in exact proportion
to the real value of money supply to its original value.
b. Keynesian view: Keynes and his followers emphasized the increase in aggregate demand over aggregate supply as the source
of demand pull inflation since Ad = C + I + G + (X - M), the rise in any component raises the AD and higher the gap between
Ad and As, higher will be the inflation rate this means Keynes asserted that inflation is the non-monetary phenomenon. He
explains when the quantity of money increases, its first effect is on the rate of interest fall. This results the rise in investment
and in turn AD and output but no change in price level; as the economy is underemployments as full employment is reached,
the prices rise without rise in output.
i.e. Ms↑⇒ r ↓ ⇒ I↑⇒Ad↑⇒Y ↑ and NO inflation
Ms↑⇒ r ↓⇒ I↑⇒ Ad↑⇒ P↑ as y Constant under the full employment economy and there is inflation
LM1
Y
LM
R2 E2
R1 E1
R IS1
E

IS

0 X
YF Y1
Y

P1 E1

E
P E1
D1
D

0 X
YF Y1
Income

Suppose that economy is in equilibrium at E where IS and LM curves intersect with full employment income level YF and
interest rate R, as shown in Panel (A) of the figure. Corresponding to this situation, the price level is P in the lower panel (B)
of the figure. Now, the government increases its expenditure. This shifts the IS curve rightward to IS1 and intersect LM curve
at E1 where the level of income and interest rate rise to Y1 and R1 respectively. The increase in government expenditure
implies an increase in aggregate demand which is shown by the upward shift of the D curve to D1 in the lower panel (B) of
the figure. This creates excess demand to the extent of EE1 (YFY1) at the initial price level P. Excess demand tends to rise the
price level as aggregate supply of output can not be increased after the full employment .As the price level rises the real value
of money supply falls. This shifts the LM curve to the left to LM1 such that it cuts the IS1 curve at E2 where equilibrium is
established at the full employment level of YF, but at a higher rate of interest R2 in panel A and a higher price level P1 in
Panel B.
Thus, excess demand caused by the rise in government expenditure results the higher price level and higher rate of interest.
Causes of demand pull inflation
1) Increase in money supply 2) Increase in government expenditure
3) Increase in Private expenditure 4) Reduction in the rate of taxes
5) Increase in exports 6) Increase in no of population
7) Repayment of old debt to the public 8) Earning of block money
9) Shortage of goods and services
2. Cost push inflation
Inflation that occurs due to the pressure of cost is called cost push inflation. It is also known as supply side inflation or make up
inflation received in 1950 and become principle cause of inflation in 1970s. According to this theory, the prices Instead of being
pulled by excess demand are pushed up as a result of rise in the cost of production. it attempts to explain the rise in prices when
the economy is at below full employment cost push inflation is caused by wage push and profit push to prices.
Causes of cost push Inflation
1. Wage push
The basic cause of cost-push inflation is the rise in money wages more rapidly than the productivity of labour. In modern times,
trade unions are very powerful. They press employers to grant higher wages in excess of increase in productivity of labour. This
increases the cost of production and in turn, prices rise.
2. Profit push
In monopoly and even in oligopoly market, they able to raise the prices of their products due to their hold in market, the profit
margin rises and inflation occurs due to the profit push.
3. Raw material push
The rise in prices of commodities due to the rise in prices of domestically produced or imported raw materials.
The cost push inflation is illustrated in the given figure.
 IS1 LM1
Y LM

R1 E1

R E

IS

0 X
Y1 YF
Y S

P1 E1

S1 E
P
D

S0

0 X
Y1 YF
Income

In panel (B) aggregate demand curve D and aggregate supply curve so are intersected at 'E' determining the full employment
output, employment and income Yf. In panel (A) the equilibrium rate of interest R is determined by the intersection of IS and LM
curves at full employment level. If the cost of production rises due to any of the influencing factors of cost push inflation, given
the demand condition D, the supply curve so shifts to S1. Consequently the equilibrium position shifts from E to E1 reflecting rise
in price level from P to P1 and fall in output, employment and income form Yf to Y1 level.
Due to the rise in price level to P1, the real value of money supply falls and LM curve shifts leftward to LM1. With the increase in
price level the demand for consumer goods falls. So, the IS curve shifts to the left to IS1 position and the equilibrium position
shifts from E to E1. Where the interest rate increases from R to R1 and the output, employment and income level fall form full
employment level. Thus, the cost-push inflation brings the economy to under employment though it was set in full employment
previously. Again, it raises the prices and the rate of interest as well. Thus cost push inflation brings the serious problem of
unemployment in the economy.
1.12 Debt Servicing
Public Debt
Public Debt, alternatively termed as Government Debt also, refers to loans raised by a government from various sources. It is
considered to be an important source of income to the government. If revenue collected through taxes & other sources is not adequate
to cover government expenditure, government may resort borrowing. Such borrowings become necessary more to launch development
programs and to fight against financial crises and emergencies like war, droughts, etc.
Internal and External Borrowing
The government borrows funds from internal as well as external sources. Public borrowings, hence, are classified into two types
which are as follows:
1. Internal Borrowing
Internal borrowing refers to the funds borrowed by the government from various sources within the country. The various internal
sources from which the government borrows include individuals, banks, business firms, and others. It is obtained in domestic
currency. Internal loans are both voluntary and compulsory. Government can raise internal borrowing in two ways. They are:
a. Market Borrowing: Market borrowing is that loan which government can collect by selling various transferable securities
like treasury bills, bills of exchange, development bonds, etc. Government provides attractive interest rate in this type of
borrowing as it is voluntary in nature.
b. Non-market Borrowing: If government collects loan without selling any securities, it is known as non-market borrowing.
It is collected through two different sources.
i. Public Sector: If government raises loan from public financial institution such as commercial banks, agricultural
development bank, rural development bank, insurance companies, etc. it is called public sector borrowing. It is the
first priority sector of the government to raise loan at the time of necessity.
ii. Private Sector: Government can accumulates loan from private financial institutions like commercial banks, finance
companies, insurance companies, cooperatives, etc. which is called private sector borrowing.
2. External Borrowing
External loans are raised from foreign countries or international institutions. These loans are obtained in foreign currencies and
are voluntary. Generally, developed countries and international financial institutions like IMF, World Bank, Asian Development
Bank, etc. provide loan with or without interest to developing countries. Actually, it is a process of transferring resources
temporarily from developed nations to developing nations where development works are handicapped due to the lack of
resources. External loan plays a vital role in developing countries to speed up the pace of economic development by utilizing
natural resources efficiently, correcting balance of payments, fighting against poverty, unemployment, etc.
External borrowing can be obtained in two different ways; bilateral and multilateral. Bilateral borrowing is that in which loan is
taken with the agreement between two nations whereas in multilateral borrowing, loan is taken by making agreement with
international institutions like World Bank, Asian Development Bank, International Monetary Fund, European Union, etc.
1.13 Population
Current Population Situation
1. Population size and growth
According to population census 2011, total population of Nepal is 26,494,504. The male and female compositions of the
population are recorded as 12,849,041 and 13,645,463 respectively. The increment of population during the last dcade is
recorded as 3,343,081 with an annual average growth rate of 1.35 percent.
2. Population density
 Population density (average number of population per square kilometer) at the national level is 180 compared to 157 in 2001.
The highest population density is found in Kathmandu district (4416 persons per square km) and lowest (3 persons per square
km) in Manang district.
3. Absent member in households
One is every four households (25.42%; 1.38 million households) reported that at least one member of their household is absent or
is living out of country. Total number of absent population is found to be 1,921,494 against 762,181 in 2001. The highest
proportion (44.81 percent) of absent population is from the age group 15 to 24 years. Gulmi, Arghakhanchi and Pyuthan districts
reported the highest proportion of their population being absent (Staying abroad).
4. Population growth in districts
The fastest decadal population growth rate is found in Kathmandu district (61.23 percent), and least in Manang (– 31.80 percent).
Altogether 27 districts including Manang, Khotang, Mustang, Terhathum, Bhojpur etc. recorded negative population growth rate
during the last decade.
5. Urban population
The urban population (population residing in 58 municipalities) in 2011 constitutes 17% (4,523,820) of the total population
compared to about 14% (3,227,879) in 2001.
6. Working age population
The working age population (aged 15 to 59 years) has increased from 54 percent (12,310,968) in 2001
7. Literacy rate
Overall literacy rate (for population aged 5 years and above) has increased from 54.1 percent in 2001 to 65.9 percent in 2011.
Male literacy rate is 75.1% compared to female literacy rate of 57.4 percent.
8. Geographical distribution of population
Geographically, Nepal is divided into three parts i.e. mountain, hill and terai. The geographical distribution of population
according to population census 2011 is presented below:
Geographical Region No. of Population Percentage
Mountain 1,781,792 6.73
Hill 11,394,007 43
Terai 13,318,705 50.27
9. Regional distribution of population
Population census 2011 presents the regional distribution of population as follows:
Development Region No. of Population Percentage
Eastern 5811555 21.93
Central 9656985 36.45
Western 4926765 18.60
Mid-western 3546682 13.39
Far Western 2552517 9.63
10. Distribution of Population by Major Caste/Ethnicity: There are 125 caste/ethnic groups reported in the census 2011.
Distribution of population by major castes are listed below:
Caste/Ethnicity No. of Population Percentage
Chhetri 4,398,053 16.6
Brahman 3,226,903 12.2
Magar 1,887,733 7.1
Tharu 1,737,470 6.6
Tamang 1,539,830 5.8
Newar 1,321,933 5.0
Kami 1,258,554 4.8
Musalman 1,164,225 4.4
Yadav 1,054,458 4.0
Rai 620,004 2.3
Others 8,285,311 31
11. Distribution of Population by Mother Tongue: There are 123 languages spoken as mother tongue reported in census 2011.
Distribution of population by major mother tongues are listed below:
Mother Tongue No. of Population Percentage
Nepali 11,826,953 44.6
Maithili 3,092,530 11.7
Bjojpuri 1,584,958 6.0
Tharu 1,529,875 5.8
Tamang 1,353,311 5.1
Newar 846,557 3.2
Bajjika 793,418 3.0
Magar 788,530 3.0
Doteli 787,827 3.0
Urdu 691,546 2.6
Others 3198999 12