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    Macroeconomic Indicators

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    Anuska Thapa
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    ‘Jerr Sifts By - Udaan Shaikshik Kendra Bagbazar, kathmandu Contact: 01-5918042, 9864298042, 9749466516, 9809428970 Macroeconomic Indicators: Consumption, Saving, and Investment (Contents © Meaning, and Features of Consumption . Meaning, and Types of Consumption Function & © etait Cannes SS . Measures to Increase Consumption . The trend of Consumption in Nepal © Saving, saving fimotion, types of saving function, the determinants of saving, trend of saving in Nepal, GDS vs GNS, and Measures to increase se © Meaning and types of investment, factors affecting the marginal efficiency of capital, tread of investment in Nepal, barriers to iavostmeat, see increase investment in Nepal. ‘Meaning of Consumption/ 37¥pt at sre . aes arin See oh aA T eeaftarcet tet erteng SaTSe | © aninastnettten pondary ares bentétont afta seh wittad a AN . seems teeny maquina eta © serge mst air meth renee or a . Itrefers to the ire by the households on the purchase of goods and services for the purpose of consumption. . C Aes ‘an act of spending income for purchasing goods and services to satisfy current physical as fental wants, . total spending made by the household sector on durable goods, nondurable goods, and servies . Consumption is one of the most important components of aggregate demand. Features of Consumption/ Soe trar faatwares, . So ter aeattaret feats GM, fesers ae GTA Tae aT eT SS . ae seinen ger oni aa fash © war anir es age eft onfile ace red ders are ante one: Barer re TEI PET © Stare at ose meray aa eh Pea drt rere gee, am fre rT afc rro see frat ect ordre some were . Consumption is the total spending made by households on durable goods, nondurable goods, and . In macroeconomics, only aggregate or total consumption is considered, . Aggregate consumption is a key macroeconomic variable that influences the overall macroeconomic activities of the country, © tis one of the important components of aggregate demand. Referring to the Keynesig@Yhgory of ‘employment, an increase in aggregate demand leads to an inerease in effective dem: & eases ‘employment level and output in the economy. Meaning of Consumption Function / 33301 Gert S wofaresat 1i savin ont a ereRanT faa Es) ST ee vad tamer fate fake aare seat weary eafra née) soir aren, ahr wfaarat omar, y= Er ‘parser safe sem it arenes ata a angel saver faa Gol aT aa STE aC a ER aaah sraters arent snr oe afieol oad anit cad cage fakes rare diaat finder eam ger feta aPEPEI NN ‘orien sarrent Frere eam ean mt afi; a C= (E,W, ¥6, PD oo D) \O Coane, Sarai we, ¥ eal W= afi, Ye= offi arm, Pape, = wa aE ‘soinar a8 acer na coeard raat orzanf aca moe Le, fra stoner stn ana ees are tre fier ee yee Fea a ‘ditTa waft (MPC). It shows the rate of change in consumption as income changes. Taa Sra Wada par saniorm po feta ered Basa | Y d= disposal income wrataa errarf. Consumption expenditure made by households is affected by several factors. The consumption function establishes the linkage between the consumption expenditure of people and its different determinants. The consumption of households or a nation is affected by so many factors like income of the consumer, accumulated wealth, expected future income, price level, interest rate, etc. The functional relationship between consumption expenditure and these factors affecting consumption is known as consumption ree function. Therefore, consumption function can be defined as the quantitative or functional, or mathematical relationship between consumption expenditure and its determinants. ‘The consumption function ean be expressed as. C=£(¥d, W, Ye, P, Where, C= Consumption, f Functional relationship, Yd Disposal income, W= Wealth position, Ye= Expected furare income, P=Price level, I= Interest rate From all the mentioned determinants of consumption, disposable income is the most important and influencing determinant. Therefore, in a simple way consumption function is the mathematical relationship between consumption expenditure and disposable income. It can be expressed as, a) oS Similarly, the consumption function can be expressed in the form of a linear equay ees ‘Types of Consumption Function/ST4PT GAT THREE The consumption function or the propensity to consume is, sified by "Keynes into two types oF two technical atuibutes as Sar wer at Bair ay wafee arg afte tema aiga nina 1 The average propensity to consume 2 ‘The marginal propensity to consume" The average propensity to consume The average propensity to consyfft (ARC) ¥ defined as the ratio of total consumption to total disposable income in a given time. So, itedéfrotitrates the share of consumption expenditure from each level of disposable income, Ge onion ger asiats omar fara orara are seit sites waht (APC) SFB | oe Fa | The NO? Sere O- to compute the value of APC/ APC 3 84 0raT Tries aa wa Tre (oe Income =C/Y= Feat Saag A =C/Y For eXtmple, ifthe level of income is Rs, 100 million and consumption expenditure is Rs. 75 million, The value of APC can be computed by using the previous formula/ Zareruret orf, afe ome HT. Yo HIST SHAT GS 6, 7.5 BS we APC ot A Afra Ge TTT IT eT ae APC=C/Y=75/100= 0.75 Here, the value of APC is 0.75 and it shows that out of 100 million income 75 percent is consumed. at APC TAT 0.84 BTTEE Yo iS STAN oh mfcerd Seat Sa GUT AUT TANS According to the psychological law of consumption, the rate of increase in consumption is less than the rate of increase in income thus, with an increase in income the value of APC declines. Spatrat wataanhs Fra ‘orga, saitrer 2 af ae sareartion et ae ae sear ae Bre, aaa srt ee af ea sTaT APC BATT HE aI Income (Y) (Consumption (C) [APC=C/Y 0 20 [ 60. "70 a7 120 120 o 180 170 (0.945 240 i220 los7 300 [270 (0.90 consumption (60 is greater than 50). Therefore, with an increase in ingom ‘has declined. *rfaret ares sasterat af ae (50 aT 60 aR) aT orn ae Te Sanger, orn ge A aT, APC STRAT fires TTT . Nt Features or Properties of APC/APC 6} 1&4 a1 TEE. NN ‘The above table clearly shows that the rate of increase in income is greater, a Yate of increase in . APC is the ratio of consumption to income; . It is the proportion of income that is . The value of APC declines as mp ses in the short ran/SIET HTeTeT sar age TAT APC starters ° The value of APC is ifeh Ox in the short run/9¥ea SETHI APC 3 FTE MPC #1 FTF =I srl Marginal Propensity’ U1 atta wah Marginal Kaya) sume (MPC) can be defined as the ratio between the change in consumption and le the change income. Therefore, itis the rate of change in APC. MPC measures the response of con-suiiipti ding to a change in income. It works out by dividing the change in consumption by the cha ome. MPC shows the rate of increase in consumption expenditure duc to per unit increase in income fhe following formula ean be used to compute the value of MPC. -MPC=Change in Consumption/ Change in Income = MPC = AC/AY tonne gc arches ara at ge atest organ HH MPC HS APC a gS attest ea MPC ra rt fee a arco aor exter fea ee Ta ee aN a aPareg SATIAT sos faa Pritam rh ae ora afte aa arr re a af a aT For example, if income is increased by 60 million and consumption is increased by 45 million then MPC can be measured as below/ SerECT eft, af oro arta meh Tsai 45 wert aaah we MPC sear aT Te afl ‘MPC = Change in consumption/ Change in income =45/60 = 0.75 MPC = Sattar Huai vada / STAT saat afta = 45/60 = 0.75 Here the value of MPC js 0.75. It shows that with an increase in income by one unit then consumption increases by 0.75 units/ Wet MPC RTT 0 Jot] WIA Uae Bae aTaTHt agar SRIMT SMT o lok UAE wa zar501 Itean be shown in the following table-aeren Fo anfereTm ary aA < Income (Y) (Consumption (C) JAPC=C/Y 0 20, ke ‘60 (70. 1.17 120 120 It 180 170 lo.oas 240 20 [0.91% 300 270 90, ‘The above table shows the measurement of MPC. sents the slope of the linear consumption function, thus it represents constant. It means if tant rate of change in income and consumption thus, MPC remains constant, HIfa&T ‘ANE FEISS] MPC a tele STNPT HET TTT afaPafirear Ts sreearet meet ws Fae TET SAT TTT SORT UAT we PT ATTA MPC Rear eersl com ‘The major factors that oe level of consumption expenditure of an economy can be explained by dividing them into t L je tors Factors Subjede Psychological aspects of human beings, social practices, and institutional arrangements of the nation make subjective factors that affect the level of consumption. All the subjective factors are assumed to be intemal factors of an cconomy and they affect the slope and position of the consumption function. Subjective factors can be further sub-divided into affecters related to human psychology and factors related to institutional arrangements. Factors Related to Human Psychology: It includes those factors which are directly associated with the psychology of human beings and that aifect consumption pattern. They are listed below. Unseen Contingenoies: \f human beings are more focused on preparing for unseen contingencies, then this, reduces consumption and increases saving. Anticipated Fature Needs: If people are more concerned about anticipated future needs such as future higher studies of children, then they reduce their current consumption Independent Motive. If humans would like to live a financially independent life, then they save more and consume less at present. Higher Social and Political Status. For obtaining higher social as well as political status in so¢feljypeople ‘would like to possess more wealth and resources with them. This requires less consumpti NA — S ‘Speculative Motive: If individuals are attracted by speculation and related activ avings Wthey always keep enough funds with them. This encourages more saving for speculation o ind less consumption at present. Miser Habit: If individuals are of miser habit, then they sayé%mofe even at a lower level of income and consume as lower as possible Love Saving. If people are guided by saving and m SY about saving to increase income in the the behavior of corporate organizati sment. It includes the following factors. future then consumption at present declines. . \ { Factors Related to Institutional. Aram ludes those factors which are directly associated with Expansion of Enterprises. \f bi is are motivated toward the development of new enterprises and ey Save more. This reduces their consumption expenditure, firms are conce: Nich issues more seriously then they consume less and maintain high liquidity. expansion of existing enterprises 1 Liquidity. Business oe keep certain liquidity to meet recurrent needs and tackle emergencies. If fe: If business firms are more focused on assurance of increasing income in the future, reat present for the expansion of business in emerging and promising areas. Financial Care. If the firms are focused on solving future needs and preventing any sort of financial erisis then they save more and reduce consumption at present, aera ett estat rca ere 1 eT THER aE MRT FRNA AC STAT TS AAT 1 ITT TESTE 2, ae ae POPE ITT TTS. AAS ST TATA THES, ATT ATES, CER STS ST STAT CARTE SHAT TS TCHS TSS SATS] BA TCHS TOTS Sree Serra TC Aes t fetes STN sport qarra t Rearend sree 1) strona aererenf ara wet rary & Searrt Saereere wear SAT agar fanfare i afro ara rier weabae ceaee: geet A araeR aaa nde Ye maa aaa ore ST aT wat amin atarend ora mdony ft acerreed Rrerger acta ARR airarararne: af mPa agra AAR ara teem ea Aare en act en Sa OE Ma safarar ana ar tran aera fel at ad Patan oF fetes set aiaey aa ATS ork orca a ae nae et aren sa eT TT aserrétratare area teal gen aria ee Be ran ea ere cen Tg es a en ae om at eee Cr ere Tera | eT ea af aa IT TSE SAT, Pe ea omar of A are eae a TET are sor arf af eq ction smart ware war wt ach Fon oy ae adr ETT AzEI eee sree reagan eR eT eA ATE Te TTT weer aa sea orn aaa semen safer raf sume Rear x raft seat ream Seen ET we areal nitrate pane ere eRe TET TOTP SAREE TT TH CTT TOE aft ereen ah rec ar Pars LA Pe a a CTE ATT TA TEA aga ona ffir af ree ie aPaonmt aa eT RTT LATE BH Sh adams t reer etary Sree farce rete eit serra wea are TT SPT es ATS) Parr gear af ice fora rae aT at BA a Ta Fara aie Sra ae a a saat aa aor ae ERSTE UPR TCO ere Objective Factors. This includes all those factors which are assumed to be external fo the economic system of the nation. Change in objective factors affecting consumption brings a shift in the consumption function, According to Keynes, the following are the major objective factors affecting the consumption expenditure of an economy. Change in Wage Level: Increase in wage level leads to an increase in consumption expenditure, However, if the price level increases by a greater proportion than an increase in wage level it reduces real wage, and consumption expenditure declines, Distribution of Iacome. \f income, wealth, and resources are distributed equally propensity to consume, and consumption also inereases. But if spect then it declines the propensity to consume, and thereby “—< + Fiscal Policy. If there is an increase in rate and bases ahs en it reduces disposable income and consumption also declines. However, ifrates and =e are reduced, and subsidies are given by the government then it increases the propensity Jo snd consumption also increases. . (Changes in Expectations. \f people arc ex ‘more at present. However, if they arg e: their current consumption, rt of war or crisis is coming soon then they consume bility, peace, and prosperity soon then they may reduce Financial Policies of Business Firms} \f business firms have adopted a distributive policy, then they distribute more funds in th€Farm of dividends. This helps to increase consumption expenditure, However, if firms have ON ‘policy, then they distribute fewer funds to the stakeholders and retain more funds. This reduces co qeubtption expenditure in the economy. Holt Ifpeople, as well as business firms, have been holding assets in liquid form then Thrift \f people and business firms have been considering saving as a good or virtue then they reduce consumption. However, if they feel saving is a vice then they increase consumption. Provision of Social Security. If the government and other related agencies have made proper provisions for social security then consumption expenditure increases. Provision of Instalment Buying: \f credit facilities are available for consumer goods, then it increases consumption expenditure in the economy. POPE (est anf sor wer one St a ne ae ne és one eo eo se ee en eee ee swe tate apy ieien ees oa soe ee Sn oe eo hoger or se ne orcad afte sed wetia si wens skin sa sos sl qe ne aoa eur afew arderadi ga sain ast ee [aT Paros ane waend aarde ee Paces wee feign sere san Sen areca Peer vars Pagan re ea a we ae Pati Sp rs ny nn ened an i sie rast aro a orem af a aca oe Et ey a, sage arat et “sera aa gar ash az 8 gia faa 2 a nba abet, a afc Fiore Wace A a eee OrSte we ore acta oH stare ad ane ma oe, aft tee Fae wf ster nian BL Sees res aT mara wots? Rte sem a fit arerronT erat ST ae TEER frre ra ae so waTT HEA TEI fear sift orca oF ater cit cam fare rge th ra fs one aa srderam avi we ae reer woah aa a afin, Storer eer eae crea OL steed a ee TE aera arigttr cit cfeees 7 lems semen pon a ir amr a fhe srersaden a cing gr eens eget 8 te aire 1 pa Te eT in TEN HUT ae era soe at TS ‘Measures to Increase Consumption/ST4¥1 {ast SIRES The following are the key measures to increase the propensity to consume! STUFT 74 NGfet AAS TSI SITES Fraerqane Tet Redistribution of Income: Income can be redistributed to increase overall consumption. The government can redistribute national income by collecting progressive taxes from the rich and giving grants and tax exemptions to the poor and needy. Therefore, consumption can be increased by redistributing income from the rch to the poor ea areata ent ara gen anal eee aera weet aR WAT seca rear Faeremerd gern tae fe afegs ara parr ware) RTE ra HO TE care tare afer anf te sr TSH AT Proper Wage Policy: To increase consumption, a wage policy should be formulated in favor of the workers. ‘While formulating the wage policy, the income eamed should be formulated in favor of the workers from the non-wage group/capitalist group. Such a labor policy helps to increase the consumption expenditure of the workers. fer aera en afrarat eae ware afr afar mf wee saver seafarers he ware Re srr aa eae rare er ee ar ey eh eh arama a oa arora nde Increase in Credit Facilities. Vf adequate credit facilities are available for purchasing a 2... goods and services, consumption will increase. If durable items like televisions, fridg Feyeles, ete, ‘can be made available in installment loans, the consumption expenditure of the mrinerease, fat ‘are ar ae me Ree aR eT aT aso GPT STON wT er arel See, fiw, Soe meer ont wean fears were fear ae TT a! Urbanization and Rehabilitation, Planning for the urbanization ot yes and towns and rehabilitation in increase consumption by increasing the demand for searceen rates da a aT 7S area arte gdh ra sa sats waa TEE D: ng can be increased by increasing the sales of new and Advertisement and Publicity: Con. standard items by publicizing irene ete, fray anita arenas rasta aot ware wt . Urbanization and resettlement help services, "1S TURE TERT T Far wag are) ante ties ay aT an mar eae eee fet a aera aI Reduction in Tax: Red Ne increases the disposable income of people and thereby consumption in the economy. There! ;Wweduction can be one of the ways to increase consumption expenditure. #THT aT a whina semi aqe piace soin ook aca ars) aed ar zat opment. For a rapid increase in consumption expenditure, proper plans and strategies elopment of infrastructures are needed. Infrastructures like transportation, and internet communication facilites are required to develop and expand in different areas of the nation to increase consumption expenditure, Ser ter aia afar ant qatar erraa anf eae ater cor Sra a aired gare ar after aan arate, Secs aSaH ya sear Gataneest rare 2 fara ea Consumption Pattern in Nepal ERSTE UPR TCO ere In Nepal, final consumption expenditure is measured in terms of amount as well as in terms of percentage of GDP. Both measures are presented below. SUTHT Sifeaa STMT Ge ana Para TA TT STAT sftrarceer Rares ares sent ga are aot Wega TRIE ‘The Patter of Final Consumption Expenditure in Nepal (Amount at current market price and in Rs. In millions) paliYew —Faglsh Year fproduct(GDP) Expenditure ECE as ODP 2067168 2010 1559012 asi 92.88674 2068169 oui 1758379 1598,004 90.87937 2069770 2012013 1949095 1,789,863 1.82108 2070/71 o13il4 2232525 2023456 90.63528 2071/72 2014/15 2423638 2,238,830 92,37473, 207278 20156 2608184 2513172 9635714 2073774 2016)17 3077185 2677585 e7.01s34 2074775 201718 3455989 2944759 8520839 2075776 2018/19 3858900 3268389 34.69659 2076177 2019/20 388708 3.566.295 94.28064 2077778 2020021 4277302 3947 60 9.29194 2078/79 P 2021722 4851625 4401671 90.72571 ‘Source: CBS, 2022 NY Saving is that part of disposable income Income (¥) = Consumption (C). 73 ora (y) see sree Meaning of Sevinghrar tt oN ton the consumption of goods and services, Thus Saving (S) = Sah ote ar rag carat ir ae GTO TT amar (y) - saree (C). ‘There isa positive relationship peween income and saving. Saving increases with an increase in income and saving decreases with @ decrease in income. sire errr wearer Ga sHCTs ae eee mew TESTA eT aT aT HE | The sav the propensity to save expresses the functional relationship between saving and the level of incame. 1 is sgply ‘of the households to hoard a part oftheir total disposable income. Symbolically, the Functional relation bemeBiygayhe and income can be defined as SCY), aa wert ape ae are Cac ee ltt ae ween ones ee rae we eect ee apres ar se TO, CAT tre aren aware SCY) aoe ane a=) Relationship between Saving and lnome / 4 tr a aE © A direct relationship exists between saving and income! A SIEGE Woke WEY Ga | ° Ifincome increases, saving also increases but in less proportion in comparison to income. savant agai wi ae aA Se a HA GOAT AT AH SLT TEE] © When income level is low, saving is negative (in the inital stages when income i low, consumption expenditure is more than the level of eaming. so there is no saving., dis-saving). When income increases, saving also increases but at a less proportion, 3H a, aa OH rare RON te Ew, we ee a Hat adi gs, waa cael GA wae Gr cre! earaafantins) ae omar aga, ae aft age ae ama Bet TET TTA sega ara | ‘Types of Saving Function Saving faction o propensity to save has two major typew/attibutes ae wafer af RS WE ERT AI Average Propensity to Save (APS)/sivwa =a raft (APS) Its the ratio of saving to income that shows the portion of the income that people saved. Symboliclly, APS=S/Y. Where, S= Swing; caleulate APS as APS= 10'180-~0.055 or §.5%, This shows that outof total income ina year, 6% willbe sx con consumption, steer a maf wre ara tae eer fra orga Bh ae TTT IT oral averse tad ta vig taraza) carer EWN, APS=S/Y. wei, S = wad; VY = rT. income. For example, when the disposable income is 180, consumption is 170, and saving arene too, gHePT TES (90 w, ETAT tow HA ADS at Frere PTT aE =F 408 $00.0 a eh a eeRT MT ea aN et TTA ae “Marginal Propensity to Save (MPS) fers gf kis the ratio of change in saving to change in income. It measures the rate of change Wagaving due to a one percent change in income. Symbolically, MPS=AS/AY= = Sp — Sp_3/Y;- ¥p—1. Where *hange in saving: AY= Change in income. For example, when income increased from 180 to 240, savings also in wm 10 to 20, We can then calculate MPS as -MPS= 10/60 =0.167. This shows that, when income increased, th shows that when income increases by one percent then saving of the linear saving funetion thus it remains fixed. / f savings also increased. More previously this, 167 petcent. The value of MPS shows the slope ara ep afta « eadaey ream west afeaa gers deere sare TT BT SF gra 9 error dr weer ee eT FETT aarsr afta MPS=ASiY==S,— Se—s/Ve- OMS = acer otc AY = sre aaa sere oh af ere Qo me ma Gyo WATT 2&0 ATCT Qo TENET A MPS a aT SATE TH AHL MPs = ser ea aa er eR RG AREY SER ae RTE I A KE, HATA A precast foren aaa ae spore ears wear rere ee mrs oneal 1 ‘The major types of savings os" below. ‘aerate seater ercen aa] ving: Saving made by an individual or a household ° ° Corpor 12 made by a corporate house ° oo ing Saving occurred due to compulsion such as increase in taxation ete ° cot saving: Saving generated by the govemment. Ifthe income exceeds the expenditure, government savitdgare gBherated a: ons ar rafearcen eat ate ° earn asa: oraies Sara aR A ran are a af fe carat eer Te aI ° areca arr: were Fier ene Reve cea remem cers ef a sero cea ae eee aca AAT vm emt: eer ear ec er oer ne ecm t= Determinants of Seving Function/ err eer PrufcmeRarTeT AC TIE Major factors affecting saving are listed as follows! re aC FST TCR PEAT HAA ooo ° Level of Income: It increases saving also increases. Rate of Interest: Ifit rises saving also rise Distribution of Wealth and Income: If tis unequal then saving ineresses and ifit is equal then saving decreases, Demographic Factors: IFthe active population is high then saving increases and ifthe dependent population is high then saving decreases. Price LevelInflationary Pressure: Higher price level reduces saving in the economy. Fiscal Policy/Taxation Poliey: Restrictive fiscal policy reduces saving in the economy, Development of BFls: The increasing pace of development of banks and financial institutions inereases saving Social Security Provisions: Proper social security provisions reduce savings inthe economy. sare ea a ger aT AEE | aust a. a rage waz OF RET O ea x mrart aTaTs STA EATS AES CAI HI ES | S srfenta aren afer sertearadh mesa age init ater ae MET os yet a agree cara, Far ea ea sora TT HET “w Fate fr earure fst tet one ar cr Pe ee Fr: eae aera frees net ref; ea rare er er Re aU Sa TT TES ‘The Paradox of Thrifvararrt Pattee = tn terms of savings, there are two different approaches thoughts WifesCAL Rd Keynesian. According to Classical thought saving is a virtue, Savings determine investment and play FS 1 role in increasing production and employment. int Classical thought is confident that national savings wills ional investment. Similarly, according to the classical ideology, savings and investment are equal (such as $=: unt of savings is equal tothe investment in the economy. ‘Savings, therefore, determine investment which pla ‘The Keynesian approach, on the other withthe classical view and is adamayf feat Tole in accelerating economic growth, spposite of the classical approach. The Keynesian approach disagrees js Wrong. Saving can be a virtue for a person ftom microeconomic analysis as ithelps to accumulate personal wealtf But ftom a macroeconomic point of view, if everyone in the economy starts savings, it will reduce consumption and,gffectiv®WEmand, and consequently reduce national income and savings itself. Therefore, saving is bad for the develagmetthgf the economy. An increase in savings reduces consumption in society, Declining consumption leads to sy profits, investment, production, employment, and ultimately savings. ‘Therefore, theparago refers tothe situation of @ contradictory analysis ofthe effectiveness of saving, Itbelieves that saving at the petidgalleyél isnot good forthe economy as an inerease in saving itself declines the capacity to save by reducing inves ployment, growth, and eaming. Thus, saving declines because ofan attempt to save more gas flies WaT Classical Keynesian | Classical MET SHC Tae ne oe a | ater Fae ab carte rad ar Reel yar el afar Ufa cere aoa gt seme FUME | =a Classical Feuer ee ae «Me TRL (HES = IHC aT TA a A RT TT AH. HAT. AT TA ‘Sct see olen fe cee a sr rT aC A Keynesian fet ster fer ver fsa se a Keynesian gfe aria eR ree ge AE TERT Bre feng cba arte ements en gas one: ene een ge frase a mea eer sede nonce opfererst rere Before etre ar era ae et eee sone era mere one ee TTC saree err rf wer karat Reema en sent ah rar aft enor en alt card oar Aha a, eT, ‘sear, dtaPra, et: ae Ferre FarcaSay eed, sacra Ferret arta rear fect Frere fares arses sare aga ere seer aaa eu ct oe rar Pa ae gas rT, soe, aT, Bat TPH sah cars ne rae oF amr ere |e, Re FT sea a ara ZA ‘The trend of Saving in Nepal! arr 4a" FA Saving ean be observed in two foems / a Eee sa TH ABI © Gross Domestic Saving (GDS): Iti the difference between the gross domestic product and final consumption expenditure. Thus, GDS=GDP-Final Consumption Expenditure © Gross National Saving (GNS): It is the difference between the gross uational disposable ey fal consumption expenditure. Thus, GNS = GNDI -Final Consumption Expenditure yet embeay er (GDS): at ger meer ger «oo ao | ee Re a S=GDP-Final Consumption Expenditure ° ‘gatas aaa (GNS): age Obes esas sat safe go aH asa Qs ~ 100 -Fn Consumption Expenditure Gross Domestic Saving VS Gross Naticnal Saving THE 801 ORT ° ‘isa elaine nssoinnes, gecrranel Mattie NES Tet whaneasrgremteiionl saving shows resources generated inside as wel as ouside the domestic terror Megat. © Grass domestic saving doesnot include the amount of fey Ment whereas gross national saving includes the transfer payments © Fremearser ay, Ree tee ae GD ens cat enfin sar aro ga mbeer sare erate wert spe ofp gar sarc tie wer 8) ‘The trend of saving in Nepal inpsened AAEM fy table, Serene ae 774 afer Freier eer fee Year mea Gross National Saving GDS as % GDP GNS as % GDP Saving (GDS) in |(GNS) in Million NRS Million NRS 2067/68 [2010/11 110897 26305 a m3 2oasies [201vi2 | _160375 595.439 22 33.86 2069770 [2012/13 | __159432 70212 gis sas 2o70iT! [2013/14 | __ 209,070 e732 936 32 2071 [2orais | __184809 929,008 768 3633 2072773 2018/16 95,012 907.204 a 3478 2o7si7 [2016/7 | __ 399.560 1282356 1298 auer 2747s [201718 | _St1.191 1398476 1479 00 2075776 [2018/19 | _-s90548 1,625,288 1530 an 207677201920 | __ 222,409 1250,731 sm 216 2077778 _|2000/21 | _~329.697 144,335 2 3330 zo7a79P [2021722 | __449984 1,380,128 327 3195 ‘Source: CBS, 2022 Measures to Increase Saving in Nepal WRT ETH SUES . Offering a higher interest rate to attract income received from remittance, and other sources. . Obiaining higher economic growth andahigher level of income . Implementing income redistribution programs suchas progressive taxation, subsidies, provisions of vouchers, and . Investing in mega project to create more jobs and earn more income . Development ofthe financial sectort collect scattered, small and idle resources . Ensuring tax incentives in interest eamed from diferent saving schemes, . Maintaining stable price . Increase in productive loan disbursements & © Ensuring productive uilzton of public db, < fiber rarer saree are rf ae . sna for fad core ae So strewn eT ag, rar ftir a rear re a eT irae ater fe ora ase ae iy { © Recaprarenia NN © emer eat rawr et Sy 8 arkarsarat seuerepre are afta ag ° IF the measures mentioned above are adopted, the natigal/sgviis can be increased and ifthe savings are increased, high . Seon gig eset erento ra) &S . sanfatior a, fara organ, ws Ta, me TO roductivity, and high economic growth can be the standard of living ean also be improved. ft seat are sure ETE a a wise era, sar nls af eter as «stare a gC IT AES INVESTMENT ‘Meaning of Investment “ In economics, inean an expenditure made on capital goods such as machines, factories, tools, ete. which increases output, ployment in the economy. Therefore, investment is that part of national income which is spent on the pital goods to increase income and employment level in the economy. The amount of investment in the expo ‘by measuring changes in the stock of capital in two different periods Different factors such as interest rate, governmental policies, the marginal efficiency of capital, investment environment, etc. directly affect the flow of investment in the economy. The functional relationship between the flaw of investment and different factors affecting the flow of investment is called the investment function, According to classical economists, investment is a negative function of the rate of interest. It means that investment is negatively affected by the rate of interest, Similarly, according to Keynes, investment isa function of interest rate as well as ‘marginal efficiency of capital. Investment is negatively affected by the rate of interest and more importantly, itis positively affected by the marginal efficiency of eapital. caniamea, cert eae ifr, area, stare safe en othr tegen nA eae ead ee kre rare, ea Cet swarksy aed, crrett what afiga sarah cit sia dt gH steerer sateen < dame ene warsa hers ag wattaer ard asl zh seem afte tet sear we ata er ae de ura TT SPE ‘er ert sda cera ware Cems raven ora fairs ara dtarer aratars wearer er ee NE carafe sniereficen sg errr erercer era ser aera ae erste come sere eee ce Gl eae ar sg rf ee arr fe set ea era | HPT TC ATTRA ITE TECH HT TS AN asapl gu, at tia aera earn eee era TS Es & rae < Theme ptotinemen esti apne Sto Finca & alo includes depreciation. This i the goss aon tthe capil stock ofan eeDene = depreciation is deducted fom ren invest then ticle et nvestnent Thu, et invest squint ius deprecation. Thi ithe net addon tthe xing capil stock ofthe economy. So, GF= NED a I GI=D then Ns zo and there i n0 os EO ‘An investment that is not affected by the level of ineor is known as an autonomous investment. This form of investment is done by the government and is affect ; BYpoPulation growth, public welfare, new research, the requirement {or infrastructural development, ete. Expenditure ‘government on the construction of a new bridge, new dam, new road, etc. are examples of autonomous. ANN ‘An investment based on income ovdg called indvoed investment. When income inreases andthe possibilty of ‘generating profit increases then induced inygsfent also increases. Induced investment is affected by interest rate, the marginal efficiency of capital, govern = profitability rate, ete, This form of investment is done by the private sector Private and Public In An investi sey byan individual, a fim, or by a private corporation to eam profit then itis called a private investment. PE is affected by interest rate, the marginal efficiency of capital, and governmental policies. Incomes iment is an example of private investment. Ani ‘that has been done by the public sector with the objective of increase in public welfare is known as pub ic investment. Public investment plays a crucial role in the establishment of socio-economic infrastructure and encouraging privat investment in the economy. Autonomous investment isan example of public investment Sr TER arr gr era gen eae SATE TRH reve cg crt cep nr tra eat ea pene perce ee | xr ae Fea ala ke gare ae kIT set ge gh a af gt corre eT erg wef ge rT Hw a nara fr era ce aT a ‘i ea, GIENIED CNI=GLDI a GI=D ah 3, NI xpArw orders brs aT eT A a al err ert Cer Te sex aca ee TE eT ea eT a eT Ta er RTT nse sete af, STAM, saat cgay, ate fra reece sacar re ea Re a, aah, eat ae Fab aT ‘erurfta see cae ea sare ee er err | ea TA egw CaN ae ETAT gS ier WE gS See ers. eet a eee He re Ete re Pe AN edt cordate ert < pleats, wel Fatt earse arora beet ent center cone Few exe, Fe cree item core Fat eon er | rite ere et ort eT saedaten de wearers foam af 7 see ae certs arta ert erect nena ‘gato area oniecaen fs rend stares eae fe eel aT era SEC Marginal Efficiency of Capital (MEC) . iti ie etd AAAS Ae Tomo cot ewe The mo MEC ws pao Aon hin EC 5m ingen niu lecaod ieee poe ded i cage Wnternstalbeoeabr bron re rane pega pal teres Meploicee eons oeaeopetonre Sind atop a en oe a NE ne pet oye eae How MBC is Determined? Determinants ‘To estimate the MEC, the investors ug e following determinants of MEC Prospective Yield (fits higher: so higher) Itis expected income tobe ob throughout the lifetime of new capital. The expected incomes in each year are called a series of anita repre 192, Q3.... (mL). To obtain the value ofthe total prospective yield ofthe capita asset. all the expected ret pital ast during its fete are med. Supply Price penraciin itigtned pital assets The cost of captal represents the supply side ofthe firm. Ina simple enue, the amount of rmottigat a) investor invests na new capital asst ike machines and equipment which produce goods is known as supply peice. Afier estimating the value of prospective yield and supply price, the investor compares the prospective yields with the supply price. This comparison will give a rate, which is called the marginal efficieney of capital (MEC). Thus, the MEC is the rate at which the present value prospective yildof a capital asset is equal tothe supply price of that asset. From such a definition, MEC isthe special discount rate that equalizes the supply price and perspective yields. That is ‘Supply Prioo= Discounted Perspective Vields (present value of perspective yields) Qa Or Qn Tan ent to ane Here SP= the supply price of a new capital asset: Qy.(p...Qy=the perspective yield in diferent years 1.2.5 =the @ Gr tin cin fil ein Te en oth Pfr aiye eied srthean fe sen cod to Sinn 72> rth PV eel ory oe mss stent te sn yr icone Insuch a way MEC is a helpful tool in making investment decisions by the firm. With help of MEC and rate of interest(i) an investor makes the following investment decisions: | como annisarearcase teeter ao) cS etter dro rarest sean geet Ie Irving Fisher a Tear fal ST SAAT ec Rig rr nemesis “a MEC a segura afr sndt Fro rare AT El FT STR seca frofes ae ‘are MEC en are ea fe ee ea er a pe Mg eT ease MEC a nas i abeon ara rine? oe apr abererar ae er ra, MEC ae fia aT ae ME aes Frater TP? MEC ret ees be argent MEC afr Futter zon sm NN tat ot at eer mg & cer ae fre ora er Q1, Q2, Q3..., Qn.) aR a aia re ae ne eae ares er mn, see eT Hw arse sift FT sate aati coat om ere ar era dy, ern et ere ee sat afer wey ean aT ea FL went arr ra i, crea seh era a er ee A iar 1 Re, MEC at fee iat ST Ce Ter NT TT EPA eae Bet ee ar ea er IE ATE asa af ea = stra era aT Qu Qe Qn “Tt Gene ho Ga 2a SP = -rat Sater arated STG Tes, QI, Q2...., Qoe fairer aoe wee §, 2, .... m ET rife srrme; c= Salta aT mT a em A TS aT ea A eT a ATE GI ARC TA FH eT ea aT a Berne Fae MEC We aR IHR MEC CHAE (i) AI, Wa HT FIT A Fe eS ae MEC >i, ered fta ger ae MEC

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