Table of Contents

Concept of Development plan: ............................................................................................... 3

Necessity and justification of planning:...........................................................................................3

Subjects to be Considered While Planning: .....................................................................................5

Major Issues Related to Planning: ...................................................................................................7

Reforms to be Made in the Planning System: ..................................................................................9

Globalization: Integration of the Modern World: .................................................................. 10

Phases of globalization: ................................................................................................................ 10

Dimensions of Globalization: ........................................................................................................ 11

Positive impacts of globalization: .................................................................................................14

Negative impacts of globalization. ................................................................................................ 15

Positive impacts of globalization in baking system of Nepal: ......................................................... 16

Negative impacts of globalization on Nepal's banking system: ...................................................... 16

Strategies to manage the negative impacts of globalization in Nepal: ............................................ 17

Challenges of Globalization: ......................................................................................................... 17

Positive impacts of globalization in baking system of Nepal: ......................................................... 18

Negative impacts of globalization on Nepal's banking system: ...................................................... 18

Privatization: ....................................................................................................................... 19

Benefits of privatization: .............................................................................................................. 20

subjects matter to be focused while engaging in privatization? ..................................................... 20

Reforms that need to be done to make the privatization process successful: .................................21

Role of private sector in privatization: .......................................................................................... 21

Obstacles to the development of private sectors: ......................................................................... 22

 Strategies for development of private sector: ............................................................................... 22

Monetary policy .................................................................................................................. 22

characteristics of monetary policy: ............................................................................................... 23

Monetary policy stance: ............................................................................................................... 23

Types of monetary policy: ............................................................................................................ 24

Objectives of Monetary Policy: .....................................................................................................25

Tools of monetary policy .............................................................................................................. 26

Transmission mechanism of monetary policy: ............................................................................... 29

Limitations of transmission mechanism ........................................................................................ 30

Further Way-out .......................................................................................................................... 31

Fiscal Policy: ........................................................................................................................ 32

Types of fiscal policy .................................................................................................................... 32

Tools of fiscal policy: .................................................................................................................... 33

Objectives of fiscal policy: ............................................................................................................ 33

Limitations/ problems of fiscal policy ........................................................................................... 35

Ways to improve the effectiveness of fiscal policy in Nepal. .......................................................... 36

Difference between monetary policy and fiscal policy ...................................................................36

Fiscal and Monetary Policy Interlinkage: ....................................................................................... 37

Inflation: ............................................................................................................................. 38

Causes of Inflations ...................................................................................................................... 38

Consequences of inflation: ........................................................................................................... 39

Concept of Development plan:
• Planning refers to a systematic framework or guideline prepared to achieve a specific
objective or goal in the future,
• It analyzes the current situation and identifies the activities, timelines, responsibilities,
and resources required to reach the expected outcome,
• Planning evaluates various alternatives and determines the most effective and appropriate
course of action,
• It is a dynamic process that can be modified and updated as needed,
• Planning facilitates the decision-making process, helps in the efficient management of
resources, and contributes to achieving the set goals on time,
• Planning is a tool that assists in the effective implementation of development policies,
• Sustainable, inclusive, and resilient development is the fundamental basis of progress
through planning,
• Planning identifies the potentials and challenges of economic development to bring about
qualitative improvements in the living standards of the people,
• Planning identifies programs and projects of strategic importance,
• Planning also prepares clear guidance for the successful implementation of projects,
regular monitoring, and evaluation of achievements.
• In summary, planning is a well-thought-out strategy that makes any task organized,
effective, and goal-oriented.

Necessity and justification of planning:

• To utilize limited resources in priority sectors,

• To accelerate social and economic development,
 • To review past achievements and progress and estimate the results of the coming days,
• To adopt and promote a result-oriented development approach,
• To increase the involvement and accountability of stakeholders, especially vulnerable
groups, in the development process,
• To move society towards development and prosperity,
• To bring the poor, vulnerable, and marginalized groups into the mainstream of the
development process,
• To enhance the trust of citizens,
• To improve the living standards of local people through local economic development,
• To bring about social transformation through gender-responsive budgeting.

Types of Plans:

1. Based on the Level of Government:

• National Periodic Plan:

o Formulated by the Government of Nepal, encompassing the overall economic and
social development of the country.
o Includes subjects and areas within its jurisdiction as per the constitution and laws.
o Covers national-level economic and social policies, large and national projects,
and inter-provincial connecting plans.
o The provincial and local levels formulate their plans based on this plan.
o Planned development in Nepal began in 2013 BS, and fifteen national periodic
plans have been formulated so far.
• Provincial Periodic Plan:
o Formulated by the provincial government, targeting the economic and social
development of the respective province.
o Includes subjects and areas within its jurisdiction according to the constitution.
o Encompasses provincial-level socio-economic policies, provincial-level projects,
and development plans affecting two or more local levels.
o This plan is formulated in alignment with the national plan.
o After the implementation of federalism, all seven provinces have formulated and
implemented their first provincial plans.
• Local Level Periodic Plan:
o Formulated by the local level, focused on local economic and social development.
o Includes subjects and areas within its jurisdiction as per the constitution and laws.
o Constructed with a long-term vision, identifying local specificities, potentials,
opportunities, and needs.
o Aims to achieve economic and social development and maintain environmental
balance.
o Requires alignment with national and provincial plans as the plans of the federal,
provincial, and local levels are interconnected.

2. Based on Time Duration:

 • Long Term Plan/Vision:
o A plan with a perspective of 15 to 25 years to achieve the long-term objectives of
an economy.
o Targets are set by assessing the future development situation, the living standards
of the people, and services and facilities.
o Formulated with the arrangement of resources.
o Example: The long-term vision of the Government of Nepal is Vision 2100 (being
implemented with the Fifteenth Plan).
o It includes long-term vision, national goals, strategies, priorities, supporting areas,
etc.
• Medium Term Plan:
o A plan to achieve goals generally within a period of 3 to 5 years.
o Formulated in line with the goals and objectives of the long-term plan.
o Emphasizes economic and social development and environmental balance, with
an estimate of resources available in the medium term.
o In Nepal, it is prevalent in the form of a five-year periodic plan.
• Short Term Plan/Annual Plan:
o A plan formulated and implemented for a period of one year.
o Helps in achieving the objectives and targets of the medium-term plan.
o Based on the estimate of resources available in one year.
o Prepared in alignment with the Medium-Term Expenditure Framework.

Subjects to be Considered While Planning:

• The Constitution of Nepal

o While formulating development plans, the main spirit of the current Constitution of
Nepal and its vision for development must be considered.
o Plans should be made in a way that helps implement the rights of citizens mentioned
in the Constitution, the policies and directive principles of the government, and the
provisions in the schedules of the Constitution.

• Existing Acts and Regulations

o While planning, the existing acts and regulations related to the plan must be
considered.
o Acts, rules, and procedures related to planning, budgeting, implementation, and
monitoring and evaluation should be taken into account.
o Rules for formulating and implementing projects should be considered.
o Acts, rules, and procedures related to mobilizing foreign aid and operating revenue,
among other things, should be considered while planning.
o For example, the Intergovernmental Fiscal Management Act, 2074 BS, covers
subjects such as the exercise of economic rights according to Article 59 of the
Constitution of Nepal, the rights of the Government of Nepal, provinces, and local
 levels to revenue according to Article 60, revenue sharing, grants, loans, medium-
term expenditure framework, budgeting, public expenditure, and financial discipline.
Plans should be made keeping in mind the provisions of this Act.

• Existing National, Provincial, and Local Policies

o While planning, the national policies issued by the Government of Nepal also need to
be considered.
o The national policies accepted by the Government of Nepal,
o Along with national policies, plans should also be made to implement the provisions
in the policies issued by the provincial and local governments.
o In addition to this, national campaigns and other necessary subjects should also be
considered while planning.

• Sustainable Development Goals (SDGs)

o The Government of Nepal has pledged to achieve the Sustainable Development Goals
by 2030 at the United Nations.
o There are 17 Sustainable Development Goals, 169 quantitative targets, and a total of
479 indicators globally and as determined by Nepal.
o The sole effort of the Government of Nepal is not enough to achieve the Sustainable
Development Goals; the cooperation of provincial and local bodies is also necessary.
o Therefore, plans should be made in a way that helps achieve the Sustainable
Development Goals.
o The Sustainable Development Goals and the ways the provinces should adopt to
achieve these goals are given in Schedule 3.

• Guidelines of the Government of Nepal

o While formulating plans, provinces should also consider the guidelines sent by the
Government of Nepal from time to time regarding the arrangements for planning,
budgeting, and monitoring and evaluation, as well as the implementation of projects.
o Doing so can align the provincial plan with the plan, annual budget, and policies of
the Government of Nepal.

• Major Problems and Potentials of the Federal, Provincial, and Local Levels

o While planning, the main problems need to be identified, and solutions to these
problems should be sought.
o Similarly, the development potentials need to be identified.
o In addition to this, plans should be made based on the analysis and review of past
plans and the current situation.
 • Election Manifesto of the Political Party Participating in the Government

o While planning, the election manifesto or commitment letter published by the

political party participating in the government should be considered, and plans should
be made keeping in mind programs or projects that can be fulfilled.
o Doing so will also help in prioritizing and including good past projects that are
nearing completion.

Major Issues Related to Planning:

Major Issues Seen During the Plan Formulation Phase:

• Failure to maintain alignment between master plans, periodic plans, MTEF, budget and
sustainable development goals.
• Insufficient flexibility in the framework of master plans while formulating periodic plans.
• Tendency to set ambitious achievements in plan formulation that are difficult to achieve,
• Insufficient coordination in the planning process of federal, provincial, and local levels.
• Lack of effective coordination between the National Planning Commission and provincial
planning commissions.

Major Issues Seen During the Project Preparation Phase:

• Lack of in-depth study of economic, social, and physical aspects while conducting
preliminary/feasibility studies.
• Failure to include very important topics in the detailed feasibility study report and haste
in preparation.
• Legal, procedural, and practical complexities in land acquisition.
• Complications in legal issues due to different rates of compensation.
• Unsystematic land use.

Major Issues Seen During the Project Selection Phase:

• Failure to mandatorily implement according to the concept of the Medium-Term

Expenditure Framework and the project bank.
• Failure to institutionalize the project bank in provinces and local levels.
• Inability to make project prioritization realistic.
• Tendency to enter only the name of the project in the data system without preparing pre-
preparation documents.
• Entering countless projects in the project bank.
• Failure to formulate and implement a framework for the implementation of ailing
projects.
• Delays in the decision-making process.
 • Duplication in the selection of plans at the federal, provincial, and local levels.

Major Issues Seen During the Resource Mobilization Phase:

• Insufficient budget allocation for projects.

• Failure to allocate sufficient budget for ongoing projects due to the addition of new
projects every year before the completion of existing ones.
• Inefficient use of alternative resource management methods and models, such as Foreign
Direct Investment (FDI), Public Private Partnership (PPP), Blended Finance, Climate
Finance, Zero Carbon Budget, Green Bonds, and Engineering, Procurement, Constructing
and Financing Contract (EPCF) model, etc.
• Duplication, triplication in resource allocation for projects, and non-compliance with the
concept of participation.
• Failure to make provision for a contingency reserve while selecting projects/programs.

Major Issues Seen During the Implementation Phase:

• Failure to properly manage technical and skilled manpower.

• Obstruction in construction work due to uncertainty in the demarcation of national
highways and determination of road boundaries.
• Insufficiency of construction materials.
• Complexity of public procurement-related provisions. Ambiguity in these laws regarding
the construction of special nature projects.
• Delays in project completion dates due to failure to separate and manage the logical
relationship, critical, and parallel activities of some projects. For example, to complete a
highway/road project, the construction of a bridge within that highway must be
completed first.
• Lack of effective coordination among state bodies.
• Failure to complete work according to the implementation work plan schedule.

Major Issues Seen During the Monitoring and Evaluation Phase:

• Absence of pre-monitoring desk review/on-site monitoring without any preparation.

• Failure to develop a system for monitoring based on indicators.
• Non-mobilization/failure to mobilize technical manpower with subject matter expertise in
monitoring.
• Non-implementation/failure to implement suggestions given in monitoring reports.
• Ineffective implementation of the provision for the joint monitoring committee
participating in the monitoring of project implementation/performance to be adequately
accountable.
• Tendency for directives given by the National Development Problem Solving Committee
and the Ministry-level Development Problem Solving Committee to remove
obstacles/hindrances encountered during development construction not to be
implemented.
• Decisions being made but not implemented, and lack of continuous follow-up on decision
implementation.
 • Failure to prepare reports based on the analysis of data and information received.
• Absence of a system to link project progress with the performance evaluation of the
specific employees there.
• Absence/poor quality of post-project evaluations.

Reforms to be Made in the Planning System:

• Make the periodic plan concise and implementable.

• Develop a system for selecting prioritized projects and programs according to the
periodic plan.
• Formulate a work plan with clear responsibilities for constitutional bodies, thematic
ministries and other bodies, and other development stakeholders for the project
implementation of the Sixteenth Plan.
• Develop an automated system in the Medium-Term Expenditure Framework and
establish a strong relationship between the periodic plan and the budget.
• Strictly implement the Medium-Term Expenditure Framework and the project bank, as
well as localize them, and fully implement the project classification criteria among the
three levels.
• Maintain provincial balance while selecting projects and allocating budgets.
• Continuously revise the criteria related to multi-year contracts according to the time.
• Improve contract management and make the regulation of construction entrepreneurs
effective.
• Make adequate provision of technical manpower and pay attention to the stability of
employees working on projects without letting technical manpower face a lack of
resources.
• Formulate and implement separate criteria related to the operation and management of
national pride projects.
• Make adequate provision of resources for large projects of the nature of economic and
social transformation.
• Do not implement projects/programs that have not undergone prior evaluation, feasibility
studies, or are not fully prepared, and reduce the number of projects/programs as much as
possible.
• Allocate budgets only to projects that have completed pre-preparation and are included in
the project bank.
• Manage ailing projects.
• Ensure investment for quick returns by allocating sufficient budget for ongoing projects
instead of adding the number of projects annually.
• Immediately implement the decisions of the National Development Problem Solving
Committee.
• Further strengthen the technical audits conducted on projects.
• Regularly review the result indicators.
• Clarify the bases for the prioritization of resources.
• Hold regular meetings and seek solutions to address the problems in the implementation
of federal and provincial development plans.
• Regularly evaluate policies and programs and continue only those programs after
evaluating their results/impact.
 • Examine the justification of projects/programs through internal evaluation and third-party
evaluation.

Globalization: Integration of the Modern World:

• Globalization is a strategy or a tool for global integration that facilitates the unrestricted
or open exchange of goods, services, intellectual property, capital, technology, and
human resources.
• Globalization ensures the connection, integration, and interdependence of the world
economy.
• Globalization is a development process that utilizes privatization and liberalization as
tools to integrate the global economy, with economic growth and development as its
ultimate objectives.
• The fundamental belief of globalization is to consider the entire world as a single village,
society, or family.

Unification interconectdeness

Development Interdependence

Phases of globalization:

Globalization 1.0 (c. 1492 - 1800):

 • Country-driven
• Exploration & Colonization
• Limited Tech (wind, horse, early steam)
• Old/New World Exchange
• World: Large to Medium

Globalization 2.0 (c. 1800 - 2000):

• Company-driven (MNCs)
• Industrial Revolution fueled
• Increased Mfg. Trade
• Global Brands emerge
• World: Medium to Small

Globalization 3.0 (c. 2000 - Present):

• Individual/Small Group-driven
• "Flat-world" platform
• Emerging Economies rise
• Services & Info focus
• World: Small to Tiny

Globalization 4.0 (Emerging - Present):

• Tech-driven integration (AI, IoT, etc.)

• Everything interconnected
• Sustainability & Resilience focus
• Digital Ecosystems rise
• Inclusion & Division potential

Dimensions of Globalization:

• Financial Globalization:
o Cross-border capital flows
o Global financial markets
o International financial institutions
• Economic Globalization:
o International trade in goods and services
o Global supply chains
o Foreign direct investment
• Technological Globalization:
o Rapid spread of information technology
 o Global communication networks
o International collaboration in research and development
• Political Globalization:
o Rise of international organizations
o Spread of international norms and laws
o Increased interdependence among nations
• Social Globalization:
o Increased migration and mobility of people
o Spread of global social movements
o Growing awareness of global issues
• Cultural Globalization:
o Exchange of ideas, values, and traditions
o Influence of global media
o Hybridization of cultures
• Legal Globalization:
o Development of international legal frameworks
o Harmonization of laws across countries
o Growth of international courts and tribunals
• Environmental Globalization:
o Global environmental challenges (climate change, pollution)
o International environmental agreements
o Cross-border environmental cooperation
• Information and Communication Globalization:
o Instant global communication
o Easy access to information from around the world
o Growth of the internet and social media
• Administrative Globalization (NPM - New Public Management):
o Adoption of similar public administration practices globally
o Emphasis on efficiency and market-based approaches in public services
o International exchange of administrative ideas and reforms

1. What are the elements or determinants of globalization? Explain clearly.

Globalization is a broad-dimensional, multifaceted process or strategy. Globalization doesn't

only touch one aspect of the global economy; its impact is felt in all sectors. Similarly, it is
influenced by not just one but many factors. The major elements of globalization are as follows:

(1) Global Markets: International financial markets, capital markets, and technology markets
influence globalization.
(2) Global Fair Competition: Fair competition is the cornerstone of market promotion, which
plays a supportive role in uniting the world.

(3) Global Economic Activities: Economic activity acts as the circulatory system of
globalization. Global economic activities are the foundation for economic cooperation,
investment, and technology transfer.

(4) Global Industry Production: Large-scale production in areas of comparative advantage

leads to cost reduction and quality improvement. This fosters mutual trust and a spirit of
cooperation.

(5) Global Relationship and Interaction: The interaction, coordination, and interrelationships
between states, companies, traders, and consumers also shape globalization.

(6) Education: Education is a tool that contributes to the internalization of good practices from
the global arena. With the help of education, the continuous exchange of knowledge, skills,
research, and intellectual property is facilitated.

AI, ICT

Actors of globalization:

1. Multinational Corporations (MNCs) / Transnational Corporations (TNCs):

o Global Production and Distribution

o Foreign Direct Investment (FDI) and Capital Flows
o Technological Innovation and Diffusion

2. International Financial Institutions (IFIs):

o Providing Financial and Technical Assistance

o Promoting Financial Stability and Global Governance
o Advocating for Liberalization and Market Reforms

3. Governments:

o Establishing Trade Policies and Agreements

o Creating Regulatory Frameworks for Global Interactions
o Participating in International Organizations and Governance

4. Non-Governmental Organizations (NGOs):

o Advocating for Global Issues and Social Justice

o Providing Humanitarian Aid and Development Assistance
 o Monitoring and Promoting Accountability

5. International Organizations (IOs):

o Facilitating International Cooperation and Dialogue

o Establishing Global Norms and Standards
o Providing Technical Assistance and Capacity Building

6. Media and Cultural Industries:

o Disseminating Information and Shaping Global Narratives

o Promoting Cultural Exchange and Hybridization
o Creating Global Brands and Consumer Culture

7. Academic and Research Institutions:

o Generating Knowledge and Analysis on Globalization

o Educating Future Global Citizens
o Fostering International Collaboration and Exchange

8. Technology and Internet Companies:

o Facilitating Global Communication and Connectivity

o Enabling E-commerce and Digital Globalization
o Driving Innovation and Technological Diffusion

9. Individuals:

o Driving Demand for Global Goods and Services

o Contributing to Cultural Exchange and Diversity
o Participating in Global Networks and Communities

Positive impacts of globalization:

• Globalization has expanded Nepal’s export opportunities, enabling products like

pashmina, carpets, and tea to reach international markets, thereby increasing foreign
exchange earnings.
• By diversifying trade partnerships through agreements like SAFTA and BIMSTEC,
Nepal has reduced its economic dependence on India.
• Foreign direct investment (FDI) in sectors such as hydropower and tourism has
strengthened infrastructure development and created employment opportunities.
• The transfer of advanced technologies and management practices from foreign firms
has improved efficiency in agriculture and manufacturing.
 • Remittances from Nepali migrant workers, accounting for nearly 23% of GDP, play a
vital role in stabilizing household incomes and supporting local entrepreneurship.
• Nepal’s global visibility as a tourist destination, driven by UNESCO sites and natural
wonders like Mount Everest, has boosted foreign revenue and job creation.
• Improved digital connectivity, including mobile banking and e-commerce platforms,
has modernized Nepal’s financial and business sectors.
• The adoption of hybrid seeds, modern irrigation systems, and machinery has
enhanced agricultural productivity and food security.
• International institutions like the World Bank and ADB provide critical funding for
infrastructure, healthcare, and education projects in Nepal.
• Global microfinance initiatives have empowered rural communities, particularly
women, by supporting small businesses and entrepreneurship.
• Access to international scholarships and educational collaborations has enhanced
Nepal’s human capital through global exposure and skill development.
• Partnerships with foreign organizations have upgraded vocational training programs,
equipping workers with skills for hospitality, construction, and IT sectors.
• Globalization has created niche markets for Nepali cultural products, such as Dhaka
fabric and traditional handicrafts, generating income for artisans.
• Consumers benefit from affordable imported goods like electronics and medicines,
while competition from global markets keeps prices in check.
• Nepal leverages global climate funds to invest in renewable energy projects, such as
hydropower and solar plants, promoting sustainable development.

Negative impacts of globalization.

Despite the various positive aspects of globalization, it is seen to have negatively impacted
many aspects of human life. Various national and international research studies have presented
different aspects, stating that globalization has made no difference in the lives of the world's
poor, the environment is deteriorating, and economic stability has not been achieved. The
negative impacts of globalization are as follows:

Here are the short sentences incorporating the parenthetical content, highlighting the negative
impacts of globalization on Nepal's economy:

• Nepal's trade deficit has widened significantly, with imports (fuel, machinery) far
exceeding exports, reaching $13.5 billion in 2022/23.
• Nepal's economy is vulnerable due to over-reliance on remittances (23% of GDP),
which also discourages domestic productivity.
• Cheap imports from India and China have crippled local industries (textiles,
handicrafts), leading to factory closures and job losses.
• The migration of skilled professionals (doctors, engineers) abroad causes a "brain
drain" that hampers Nepal's development.
• Traditional crafts like Dhaka fabric struggle against mass-produced global goods,
eroding cultural heritage.
 • Globalization-driven tourism and mining accelerate deforestation, waste pollution,
and Himalayan glacier melting.
• Migrant workers face exploitation abroad, including low wages, unsafe conditions,
and human rights abuses.
• Subsidized foreign agricultural products (e.g., Indian rice) undercut Nepali farmers,
deepening rural poverty.
• Urban centers like Kathmandu benefit disproportionately from FDI and tech,
worsening urban-rural inequality.
• Foreign loans for infrastructure projects (e.g., BRI) risk debt traps and loss of
economic sovereignty.
• Nepal's import dependency exposes it to global price shocks, spiking inflation for
essentials like fuel and food.
• Indigenous knowledge (farming, medicine) declines as Westernized practices replace
traditional methods.
• Overdependence on trekking tourism creates seasonal, low-skilled jobs while
neglecting sustainable alternatives.
• Rural areas lag in digital access, widening gaps in education, healthcare, and
economic opportunities.
• Multinational corporations dominate sectors like telecom, marginalizing local SMEs
and extracting profits overseas.

Positive impacts of globalization in baking system of Nepal:

• Increased foreign capital and global banks boosted financial liquidity.

• Digital platforms and fintech expanded financial inclusion.
• Global competition spurred innovative financial products.
• International standards enhanced risk management and transparency.
• Global networks streamlined remittances and trade transactions.
• Partnerships trained Nepali bankers in modern practices.
• Policy alignment attracted investment and stabilized the sector.
• Access to global credit markets provided diverse funding.
• Remittances via banks stabilized forex reserves.
• Globalization shared best practices in regulation and infrastructure.

Negative impacts of globalization on Nepal's banking system:

• Foreign banks outcompete local banks, reducing their market share.

• Integration increases vulnerability to global financial shocks.
• Dependency on foreign currency exposes banks to exchange rate risks.
• Aggressive lending has led to a spike in non-performing loans.
• Skilled banking professionals are migrating abroad (brain drain).
• Digital banking adoption increases exposure to global cyberattacks and fraud.
• Heavy reliance on remittances creates systemic risks.
• Profit repatriation by foreign banks drains capital from Nepal.
 • Under-resourced regulators face challenges in enforcing global compliance.
• Foreign financial products can be misaligned with local needs, leading to issues.

Strategies to manage the negative impacts of globalization in Nepal:

• Strengthen local industries with tariffs and "Made in Nepal" campaigns.

• Diversify exports towards high-value goods and services.
• Regulate FDI with sector-specific caps to prevent monopolies.
• Expand vocational training to retain youth and reduce brain drain.
• Promote sustainable tourism focusing on local revenue.
• Train rural populations in digital finance and cybersecurity.
• Enforce labor rights for migrant workers through bilateral agreements.
• Subsidize organic farming and connect farmers to global niche markets.
• Leverage global climate funds for renewable energy and reforestation.).
• Channel remittances into productive sectors with tax incentives.
• Protect traditional crafts with GI tags and e-commerce platforms.
• Upgrade cybersecurity frameworks and establish a national authority.
• Tax multinational corporations (e.g., digital service taxes) for local funding.
• Involve marginalized groups in globalization policymaking.

Challenges of Globalization:

• To promptly establish CBDC policy, institutions, and structure.

• To discourage money laundering & terrorism financing; unify regulatory bodies.
• To revise & refine cyber security for interconnected financial institutions.
• To address banking liquidity challenges from exchange rate fluctuations.
• To enhance transparency & governance via global accounting principles.
• To minimize crisis transmission from interconnected financial markets.
• To find sustainable solutions for banking system fluctuations due to pandemics.
• To scientifically manage import financing due to low domestic production.
• To protect banks from systemic risk in globalized banking.,
• To strengthen oversight of cross-border financial flows and transactions.
• To promote financial inclusion through digital banking initiatives.
• To improve the efficiency and reduce the cost of payment systems.
• To foster innovation in financial technology (FinTech) responsibly.
• To enhance consumer protection and awareness in financial services.
• To build resilience against climate-related financial risks.
• To streamline regulatory reporting requirements for financial institutions.
• To facilitate the development of a robust domestic capital market.
• To strengthen collaboration between financial sector regulators and law enforcement
agencies.
• To promote sustainable and green financing practices.
Positive impacts of globalization in baking system of Nepal:

• Increased foreign capital and global banks boosted financial liquidity.

• Digital platforms and fintech expanded financial inclusion.
• Global competition spurred innovative financial products.
• International standards enhanced risk management and transparency.
• Global networks streamlined remittances and trade transactions.
• Partnerships trained Nepali bankers in modern practices.
• Policy alignment attracted investment and stabilized the sector.
• Access to global credit markets provided diverse funding.
• Remittances via banks stabilized forex reserves.
• Globalization shared best practices in regulation and infrastructure.

Negative impacts of globalization on Nepal's banking system:

• Foreign banks outcompete local banks, reducing their market share.

• Integration increases vulnerability to global financial shocks.
• Dependency on foreign currency exposes banks to exchange rate risks.
• Aggressive lending has led to a spike in non-performing loans.
• Skilled banking professionals are migrating abroad (brain drain).
• Digital banking adoption increases exposure to global cyberattacks and fraud.
• Heavy reliance on remittances creates systemic risks.
• Profit repatriation by foreign banks drains capital from Nepal.
• Under-resourced regulators face challenges in enforcing global compliance.
• Foreign financial products can be misaligned with local needs, leading to issues.

Challenges of Globalization:

• To promptly establish CBDC policy, institutions, and structure.

• To discourage money laundering & terrorism financing; unify regulatory bodies.
• To revise & refine cyber security for interconnected financial institutions.
• To address banking liquidity challenges from exchange rate fluctuations.
• To enhance transparency & governance via global accounting principles.
• To minimize crisis transmission from interconnected financial markets.
• To find sustainable solutions for banking system fluctuations due to pandemics.
• To scientifically manage import financing due to low domestic production.
• To protect banks from systemic risk in globalized banking.,
 • To strengthen oversight of cross-border financial flows and transactions.
• To promote financial inclusion through digital banking initiatives.
• To improve the efficiency and reduce the cost of payment systems.
• To foster innovation in financial technology (FinTech) responsibly.
• To enhance consumer protection and awareness in financial services.
• To build resilience against climate-related financial risks.
• To streamline regulatory reporting requirements for financial institutions.
• To facilitate the development of a robust domestic capital market.
• To strengthen collaboration between financial sector regulators and law enforcement
agencies.
• To promote sustainable and green financing practices

Privatization:
• "Privatization" shall mean the act of involving the private sector in the management of an
enterprise, selling, leasing, transferring government ownership to the general public, or
 through any other means, ensuring partial or full participation of the private sector or the
employees, workers, or all interested groups of such enterprises. - Privatization Act, 2050
• Privatization refers to the process of transferring government-owned institutions to the
private sector.
• In other words, privatization is considered a strategy of handing over operational
responsibility (task, management, problem-solving, risk) along with government
ownership to the private sector.

Benefits of privatization:

• Privatization can lead to improved efficiency and productivity.

• Service quality often gets enhanced through privatization.
• Privatization facilitates better resource mobilization.
• Innovation and technology transfer can be spurred by privatization.
• The government's financial burden can be reduced through privatization.
• Privatization has the potential to reduce corruption and bureaucracy.
• Competitive markets are often fostered by privatization.
• Privatization can generate a broader fiscal revenue base.
• Accountability and transparency may improve with privatization.
• Privatization can facilitate global integration and access to international markets.
• Flexible management and decision-making processes often result from privatization.
• Privatization allows the government to focus on its core functions.
• Enhanced consumer satisfaction can be a significant outcome of privatization.
• Privatization can contribute to improved infrastructure development.
• Increased investment and capital inflow can be stimulated through privatization.
• Privatization may lead to better alignment of business objectives with market demands.
• Employee ownership schemes in privatization can boost motivation and productivity.
• Specialized expertise and management skills from the private sector can be leveraged.
• Privatization can contribute to economic growth and job creation in the long run.

subjects matter to be focused while engaging in privatization?

• Privatization should not be done when there is no competitive environment.

• Privatization should not be done in a way that causes a loss to the institution.
• Privatization should not be done in a way that creates a monopoly.
• Privatization should not be done by adopting non-transparent and arbitrary working
procedures.
• Privatization should not be done by intentionally leading the institution into losses.
• Institutions that have taken loans or are debt-ridden should not be privatized.
• Privatization should not be done without political consensus.
• Privatization should not be done by giving false assurances to the workers.
Reforms that need to be done to make the privatization process successful:

• Instead of privatizing only loss-making institutions, identify and privatize profitable

institutions and those with the potential to become profitable after privatization.
• Prepare privatization plans by classifying institutions according to their performance
levels.
• Establish high-level political consensus regarding privatization.
• Emphasize the valuation of assets and the selection of suitable businesses during
privatization.
• Restructure the existing privatization committee.
• Amend the Privatization Act and issue regulations.
• Establish a powerful privatization bureau and bring problematic institutions under its
jurisdiction.
• Conduct the privatization process transparently after extensive groundwork.
• Increase the broad participation of employees and workers in the privatization process.
• Form a team of experts for the asset valuation process and arrange for its public
disclosure.
• Always include privatization in government policies and programs.
• Legally define the work, duties, and rights of the bodies and officials involved in
privatization.
• Make legal arrangements to establish a privatization fund.
• Create specific standards regarding the management of employees of privatized
institutions.

Role of private sector in privatization:

• To provide the government with necessary advice, suggestions, and feedback for
formulating Macroeconomic Policy that aligns with the country's real situation.
• To conduct economic activities such as industry, trade, and commerce in accordance with
the country's economic policy.
• To pay taxes as determined by the government within the bounds of the law. To
collaborate with the government in economic development areas through the concept of
public-private partnership.
• To conduct economic activities that align with the economic policy adopted by the state.
• To take necessary initiatives to bring rapidly developing knowledge, skills, capital, and
technology into the country.
• To identify areas of comparative advantage and invest in those areas.
• To develop a good business culture by fulfilling social responsibilities alongside profit
generation.
• To protect consumer interests and promote exports by producing quality goods and
services within the country through fair competition.
Obstacles to the development of private sectors:

• Insufficient development of physical infrastructure

• Policy instability and unhealthy labor relations
• Low competitive capacity
• Weak and small capital market
• Fear of shutdowns, strikes, donations (extortion), ransom, etc.
• Lack of transparency, accountability, and social responsibility
• Lack of cooperation between small, medium, and large enterprises
• Unstable industrial environment

Strategies for development of private sector:

• To implement policy, legal, and procedural reforms to increase private sector investment,
production, and employment.
• To manage the policy, legal, and institutional framework for public-private partnerships.
• To promote public-private partnerships from the federal, provincial, and local levels.
• To guarantee an investment-friendly environment and the security of investments to
increase investment.
• To establish the private sector in a leading role in the industrial sector.
• To motivate the private sector in the commercialization, modernization, and
industrialization of the agricultural sector.
• To make the service sector qualitative and competitive in collaboration with the public,
cooperative, and community sectors.

Monetary policy
Monetary policy is the strategic management of money supply and credit conditions within an
economy, primarily formulated by the central bank. Its fundamental aim is to foster a stable
economic environment for inclusive, sustainable growth and prosperity.

• Monetary policy involves central bank actions to manage money and credit for economic
stability,
• Key objectives are price stability, external sector stability, full employment, economic
growth, and financial stability,
 • The central bank, often through a committee, formulates and implements monetary
policy,
• Central banks use bank rate, reserve requirements, open market operations, liquidity
tools, and forward guidance.

characteristics of monetary policy:

• Monetary policy influences the supply of money and credit,

• Interest rates are significantly impacted,
• It focuses on broad economic stability,
• Policy effects often have time lags,
• It requires a forward-looking approach,
• Monetary policy is dynamic,
• Central bank credibility is crucial,
• It interacts with other government policies.

Monetary policy stance:

The monetary policy stance is the central bank's current approach in managing the money supply
and interest rates to achieve its economic goals.

1. Loose (Expansionary) Monetary Policy Stance:

• The central bank aims to stimulate economic growth,

• It typically involves lowering interest rates to make borrowing cheaper for businesses
and consumers,
• Measures like reducing reserve requirements for banks or buying government
bonds are used to increase the money supply.

2. Tight (Contractionary) Monetary Policy Stance:

• The central bank aims to control inflation and prevent the economy from overheating,
• It typically involves raising interest rates to make borrowing more expensive,
• Measures like increasing reserve requirements for banks or selling government
bonds are used to decrease the money supply.

3. Neutral Monetary Policy Stance:

• The central bank aims to neither stimulate nor restrain (control) the economy
significantly,
• Interest rates are generally kept stable,
 • The central bank monitors economic conditions and is ready to adjust its stance if needed,
but there's no immediate pressure to move in either an expansionary or contractionary
direction.

Types of monetary policy:

Expansionary Monetary Policy:

Expansionary monetary policy is a macroeconomic tool employed by central banks to stimulate

economic growth during periods of slowdown or recession. By making borrowing more
affordable and increasing the availability of credit, it seeks to encourage spending and
investment, thereby boosting aggregate demand and fostering job creation.

• Lowers policy interest rates to make borrowing cheaper,

• Reduces reserve requirements, allowing banks to lend more,
• Involves central bank purchases of government securities (open market operations) to
inject money into the system,
• Intended to increase aggregate demand, leading to higher economic growth and
potentially inflation,
• Often implemented during recessions or periods of low economic activity and high
unemployment.

Contractionary Monetary Policy

Contractionary monetary policy is a deliberate action undertaken by a central bank to cool down
an overheating economy characterized by high inflation. By tightening financial conditions, it
aims to reduce the overall demand for goods and services, thereby alleviating upward pressure
on prices.

• Raises policy interest rates, increasing the cost of borrowing,

• Increases reserve requirements, limiting the amount banks can lend,
• Involves central bank sales of government securities (open market operations) to
withdraw money from the system,
• Intended to decrease aggregate demand, helping to control inflation and prevent
economic overheating,
• Typically used when the economy is growing too rapidly and inflation is rising.

Neutral Monetary Policy:

Neutral monetary policy represents a stance where the central bank seeks to maintain the
existing economic trajectory without actively stimulating or restricting growth. Its goal is to keep
monetary conditions steady, supporting the current level of economic activity and price stability.
 • Seeks to keep interest rates at a level that neither stimulates nor restricts economic
growth,
• Involves maintaining the existing level of reserve requirements,
• May involve open market operations to offset other factors affecting the money supply,
keeping conditions stable,
• Intended to sustain the current economic trajectory without adding inflationary or
deflationary pressures,
• Often employed when the economy is considered to be operating at its potential with
stable inflation.

Objectives of Monetary Policy:

Central banks manage money and credit for economic stability through monetary policy. The
aim of MP is to maintain a stable environment for sustainable and inclusive growth.

1. Price Stability: (Low and stable inflation.)

o Preserves purchasing power,
o Reduces business uncertainty,
o Supports stable exchange rates,
o Avoids resource allocation issues,
o Foundation for growth.
2. Full Employment:( High employment without fueling inflation.)
o Reduces unemployment costs,
o Increases income and spending,
o Fuller use of human capital,
o Greater social cohesion,
o Supports long-term growth.
3. Economic Growth: (Supporting sustainable economic expansion.)
o Low rates incentivize borrowing,
o Stable prices encourage investment,
o Efficient financial markets,
o Prevents growth-disrupting crises,
o Full employment boosts output.
4. Financial System Stability: (Maintaining a sound and resilient financial system.)
o Prevents financial crises,
o Maintains confidence in banks,
o Efficient capital allocation,
o Reduces contagion risk,
o Supports policy effectiveness.
Tools of monetary policy

Feature Quantitative Tools Qualitative Tools

Nature General, affect the overall volume Selective, directed towards specific
of credit. sectors or uses of credit.
Focus Controlling the cost and quantity of Controlling the use and direction of
credit. credit.
Impact Economy-wide, influence the total Specific sectors, influence the allocation
money supply. of credit.
Examples - Bank Rate/Discount Rate - Margin Requirements,

- Cash Reserve Ratio (CRR), - Regulation of Consumer Credit,

- Statutory Liquidity Ratio (SLR), - Credit Rationing,

- Repo Rate and Reverse Repo Rate, - Moral Suasion,

-Open Market Operations (OMOs), - Direct Action

- Marginal Standing Facility (MSF)

Selectivity Non-discriminatory, apply Discriminatory, can be tailored to
uniformly across the banking specific needs.
system.
Effectiveness Effective in influencing the overall Effective in channeling credit and
money supply. promoting specific economic activities.

Quantitative tools

Cash Reserve Ratio (CRR):

• It's the portion of a bank's total deposits required to be held as reserves with the central
bank,
• Increasing CRR reduces the funds available for commercial banks to lend, tightening
liquidity,
• Decreasing CRR increases the lendable funds with banks, boosting liquidity in the
system,
• It directly impacts the money multiplier and the lending capacity of banks.

Statutory Liquidity Ratio (SLR):

• It's the percentage of a bank's net demand and time liabilities that must be held in liquid
assets,
• These liquid assets typically include cash, gold, and government securities,
 • A higher SLR mandates banks to hold more liquid assets, limiting their ability to extend
credit,
• It ensures banks have sufficient liquid assets to meet their obligations and influences
credit availability.

Bank Rate:

• Also known as the discount rate, it's the interest rate at which commercial banks can
borrow money directly from the central bank,
• An increase in the bank rate makes borrowing from the central bank more expensive,
potentially leading to higher lending rates,
• A decrease in the bank rate reduces the cost of borrowing for banks, which can translate
to lower lending rates,
• It serves as a benchmark rate and signals the central bank's monetary policy stance.

Open Market Operations (OMOs):

• These involve the central bank buying or selling government securities in the open
market,
• When the central bank buys securities, it injects money into the banking system,
increasing liquidity,
• When the central bank sells securities, it withdraws money from the banking system,
reducing liquidity,
• OMOs are a flexible and frequently used tool to manage short-term liquidity and
influence interest rates.

Policy Rates (Repo Rate/Reverse Repo Rate):

• These are key short-term interest rates set by the central bank for lending to (repo) and
borrowing from (reverse repo) commercial banks,
• The repo rate is the cost for banks to borrow short-term funds from the central bank,
influencing other lending rates,
• The reverse repo rate is the rate at which the central bank borrows from commercial
banks, setting a floor for short-term rates,
• Changes in policy rates are a primary tool to signal the monetary policy stance and
impact borrowing costs.

Interest rate corridor

• It's a system used by central banks to guide short-term market interest rates within a
defined range,
• The corridor is typically established by a ceiling (the rate at which the central bank lends
to commercial banks) and a floor (the rate at which the central bank accepts deposits
from commercial banks),
• The central bank's policy rate (e.g., repo rate) usually lies within this corridor, acting as a
target for the overnight interbank lending rate,
 • By managing liquidity and standing facilities, the central bank encourages market rates to
remain within the corridor, ensuring stability and aiding monetary policy transmission.

Qualitative tools:

Sectoral Credit Requirement:

• Central bank sets targets for lending to specific sectors (e.g., agriculture, SMEs),
• Aims to ensure credit flows to priority areas for economic development,
• Banks may be required to allocate a certain percentage of their loans to these sectors,
• This directs credit and investment towards desired economic activities.

Consumer Credit Rationing:

• Central bank sets rules for loans on consumer goods (e.g., down payments, loan terms),
• Aims to control the amount of credit used for purchasing consumer items,
• Can help curb inflation by limiting demand for certain goods,
• Influences borrowing power of individuals for non-essential spending.

Direct Actions:

• Central bank directly intervenes if banks don't follow its policies,

• Can include refusing to rediscount bills or imposing penalties,
• Used as a coercive measure to ensure compliance with monetary policy,
• Signals the central bank's seriousness about policy implementation.

Moral Suasion:

• Central bank uses persuasion and requests to influence banks' behavior,

• Involves appeals, suggestions, and informal pressure to align with policy goals,
• Relies on the central bank's authority and banks' cooperation,
• Can be effective if banks trust and respect the central bank's guidance.
Transmission mechanism of monetary policy:

Monetary policy transmission refers to how central bank actions (e.g., interest rates) affect
economic variables like lending, spending, investment, and inflation. It can be explained with the
help of various channels.

1. Interest Rate Channel: (Monetary policy affects spending through interest rates)
 • Central bank changes policy rates (e.g., bank rate),
• This influences other interest rates in the economy (e.g., lending, deposit),
• Higher rates increase borrowing costs for consumers and firms,
• Leads to reduced investment and consumption spending,
• Lower rates have the opposite effect, stimulating economic activity.

2. Credit Channel: (Monetary policy affects the availability and cost of credit)

• Monetary policy impacts banks' ability to lend,

• Higher reserve requirements reduce lendable funds,
• Changes in the bank rate affect the cost of funds for banks,
• This alters the supply of credit available to borrowers.

3. Asset Price Channel: (Monetary policy influences wealth and investment decisions through
asset prices)

• Changes in interest rates affect the valuation of assets (e.g., stocks, bonds, real estate),
• Lower rates can increase asset prices, making households feel wealthier (wealth effect),
• Higher asset prices can improve firms' balance sheets and reduce the cost of capital
(Tobin's q),
• This can lead to increased consumption and investment spending,
• Conversely, higher rates can decrease asset prices and dampen economic activity.

4. Exchange Rate Channel: (Monetary policy impacts net exports through the exchange rate)

• Changes in domestic interest rates relative to foreign rates affect capital flows.
• Higher domestic rates can attract foreign investment, appreciating the local currency.
• A stronger currency makes exports more expensive and imports cheaper, reducing net
exports.
• Lower domestic rates can lead to currency depreciation, boosting net exports.
• This channel is particularly relevant for open economies with flexible exchange rates.

5. Expectations Channel: (Monetary policy influences economic decisions by shaping

expectations about the future)

• Central bank communication (forward guidance) plays a key role.

• Credible policy announcements can influence expectations about future interest rates and
inflation.
• If the central bank signals lower future rates, businesses may invest more today.
• Well-anchored inflation expectations contribute to stable pricing behavior.
• Expectations can amplify or dampen the effects of other monetary policy channels.

Limitations of transmission mechanism

• Large informal economy limits policy reach,

• Remittance dependence dilutes monetary control,
 • Underdeveloped financial sector weakens policy transmission,
• Fixed exchange rate with India reduces autonomy,
• Credit diverted to unproductive sectors (e.g., real estate),
• Political instability disrupts policy consistency,
• Low financial literacy hampers public response,
• Structural issues require non-monetary solutions,
• Vulnerable to external shocks (e.g., global prices, climate, other conflicts),
• High import dependence exposes Nepal to imported inflation,
• Weak interest rate transmission due to financial structure and risk aversion,
• High government borrowing crowds out private credit,
• Structural supply-side issues limit growth response to monetary stimulus.
• Limited monetary policy instruments restrict nuanced implementation.

Further Way-out

Structural provisions:

• Formalize informal sector.

• Develop financial markets.
• Diversify the economy.
• Support SME growth.
• Invest in skills development.

Policy provision:

• Coordinate fiscal and monetary policy.

• Target credit to productive sectors.
• Mobilize government borrowing in productive sectors.
• Incentivize productive investment.
• Policy harmonization,
• Policy advocacy,
• Data based/ fact base policy formulation,
• Internalization of international best practices.

Behavioral provision:

• Improve financial literacy.

• Promote productive investment.
• Foster political consensus.
• Strengthen governance.
• Encourage saving.

Procedural provisions:
 • Improve data collection.
• Enhance policy transparency.
• Evaluate policy effectiveness.
• Streamline business procedures.
• Improve public communication.

Fiscal Policy:

Fiscal policy refers to the set of actions undertaken by a government to influence a nation's
economy using its spending and taxation powers.

• Fiscal policy involves the Government’s actions regarding its revenue and expenditure.
• The purpose of fiscal policy is to achieve economic growth, maintain stability, promote
employment, and ensure equity within Nepal.
• The Ministry of Finance of the Government is responsible for formulating and
implementing fiscal policy.
• Fiscal policy operates throughout economy’s entire economic landscape.
• The government influences the economy by adjusting tax rates, tax bases, managing
public spending, and handling national debt.

Types of fiscal policy

1. Expansionary Fiscal Policy:

• Aims to stimulate economic growth.

• Increases government spending on infrastructure, social programs, etc.
• Reduces taxes to increase disposable income.
• Can lead to budget deficits.
• Often used during recessions or economic slowdowns.

2. Contractionary Fiscal Policy:

• Aims to slow down economic growth and control inflation.

• Decreases government spending.
• Increases taxes, reducing consumer and business spending.
• Can lead to budget surpluses or reduced deficits.
• Typically implemented during periods of high inflation or economic booms.

3. Neutral Fiscal Policy:

 • Government spending equals government revenue.
• Maintains the current level of aggregate demand.
• Does not actively try to influence economic activity.
• Often pursued when the economy is considered to be at a stable and sustainable level.
• Can serve as a baseline against which expansionary or contractionary policies are
compared.

Tools of fiscal policy:

1. Government Spending:

• Direct expenditure on goods and services (infrastructure, defense).

• Transfer payments (social security, unemployment benefits).
• Investment in human capital (education, healthcare).
• Grants and subsidies to businesses or individuals.
• Influences aggregate demand directly.

2. Taxation:

• Income taxes (personal and corporate) affecting disposable income.

• Sales taxes (VAT, excise duties) impacting consumption.
• Property taxes influencing wealth and local government revenue.
• Tariffs and trade taxes affecting international trade.
• Used to finance government spending and influence economic behavior.

3. Public Borrowing (Government Debt):

• Issuing government bonds and securities to finance deficits.

• Can crowd out private investment if excessive.
• Interest payments on debt can become a significant expenditure.
• Used to fund large projects or respond to economic crises.
• Sustainability of debt levels is a crucial consideration.

Objectives of fiscal policy:

1. Economic Growth:

• Boost overall economic activity.

• Encourage investment and production.
• Increase GDP and living standards.
• Foster long-term development.
2. Price Stability:

• Control inflation and deflation.

• Maintain stable purchasing power.
• Provide a predictable economic climate.
• Support business planning.

3. Full Employment:

• Create ample job opportunities.

• Reduce unemployment rates.
• Maximize labor force utilization.
• Enhance social well-being.

4. Equitable Distribution:

• Reduce income inequality.

• Provide social safety nets.
• Support vulnerable populations.
• Promote social cohesion.

5. Business Cycle Stability:

• Counter economic booms and busts.

• Smooth out economic fluctuations.
• Prevent deep recessions.
• Moderate inflationary pressures.

6. Sustainable Public Debt:

• Manage government borrowing wisely.

• Avoid excessive debt accumulation.
• Ensure fiscal sustainability.
• Protect future generations.

7. Efficient Resource Allocation:

• Fund essential public services.

• Invest in infrastructure and human capital.
• Enhance long-term productivity.
• Address market failures.

8. External Stability:

• Manage balance of payments.

• Maintain stable exchange rates.
 • Promote sustainable trade flows.
• Attract foreign investment.

9. Resource Mobilization:

• Finance public development programs.

• Generate revenue for government spending.
• Support national priorities.
• Promote self-reliance.

10. Investment Climate:

• Encourage domestic investment.

• Attract foreign capital.
• Foster innovation and entrepreneurship.
• Enhance competitiveness.

Limitations/ problems of fiscal policy

• Chronic delays in budget approval disrupt project implementation.

• Narrow tax base relies heavily on indirect taxes.
• High tax evasion due to a large informal economy.
• Unsustainable public debt is rising due to infrastructure borrowing.
• Low capital expenditure with a significant portion of the budget unspent.
• Overdependence on remittances creates fiscal fragility.
• Recurrent expenditure dominates the budget, limiting development funds.
• Inefficient subsidies drain resources without significant productivity gains.
• Weak federal fiscal coordination leads to mismanagement of devolved funds.
• Significant loss of development funds due to corruption and leakage.
• Loose fiscal policies have contributed to inflationary pressures.
• Frequent climate disasters divert funds from development to emergencies.
• High dependency on foreign aid risks sovereignty and project alignment.
• Untaxed informal sectors hinder revenue mobilization.
• Risks in the banking sector (liquidity, high NPLs) strain fiscal stability.
• Poor prioritization of projects leads to wasteful "white elephant" investments.
• Weak social security coverage increases future fiscal burdens.
• Regional disparities in development spending marginalize certain areas.
• High youth unemployment strains welfare and reduces productivity.
• Lack of transparency in off-budget spending undermines accountability.
Ways to improve the effectiveness of fiscal policy in Nepal.

• Digitize tax collection and enforce PAN registration to expand the tax base.
• Use AI to track tax evasion and strengthen tax compliance.
• Replace blanket subsidies with targeted Direct Benefit Transfers via mobile banking.
• Implement a "Use It or Lose It" rule to prioritize capital expenditure and curb delays.
• Build capacity of local governments through training and tech tools for fiscal
decentralization.
• Adopt Medium-Term Expenditure Frameworks for infrastructure project continuity.
• Upgrade the Integrated Financial Management Information System for real-time
spending tracking.
• Establish an independent Fiscal Oversight Commission to curb corruption.
• Offer tax incentives for long-term deposits in infrastructure bonds to mobilize domestic
savings.
• Attract private investment in key sectors via transparent Public-Private Partnership laws.
• Cap non-concessional borrowing and prioritize grants for climate projects to improve
debt management.
• Redirect agricultural subsidies to infrastructure and market linkages.
• Expand contributory social security schemes to cover informal workers.
• Impose carbon taxes and reward renewable energy projects with green fiscal policies.
• Create remittance-backed investment bonds for productive sectors.
• Publish real-time budget data on a Citizen’s Budget Portal for enhanced transparency.
• Amend the Public Procurement Act to penalize delays and corrupt contractors.
• Allocate a higher percentage of the budget to education and skills development.
• Create a National Disaster Risk Fund with a portion of the annual budget.
• Align fiscal deficits with the central bank's inflation targets for price stability.

Difference between monetary policy and fiscal policy

Feature Monetary Policy Fiscal Policy

Authority The authority responsible for The authority responsible for fiscal
monetary policy is typically the policy is the Government, usually
Central Bank (in Nepal's case, through its Ministry of Finance.
Nepal Rastra Bank).
Primary Tools The primary tools of monetary The primary tools of fiscal policy are
policy include interest rates, government spending on goods and
reserve requirements for banks, services, and taxation policies.
and open market operations
 (buying and selling government
securities).
Main Objective The main objectives of monetary The main objectives of fiscal policy are
policy are generally price stability typically promoting economic growth,
(controlling inflation), promoting achieving full employment, and
full employment, and supporting influencing income distribution in the
sustainable economic growth. economy.
Impact on Monetary policy primarily Fiscal policy directly affects aggregate
Economy influences the economy by demand in the economy through
affecting borrowing costs and government spending and indirectly
the overall money supply, which influences it through the impact of
in turn impacts investment and taxation on disposable income and
consumption decisions. business investment.
Implementation Monetary policy decisions can Fiscal policy changes can often have
Lag generally be implemented more longer implementation lags due to the
quickly as they are typically need for legislative approval and
decided and enacted by the political processes.
central bank.

Fiscal and Monetary Policy Interlinkage:

Fiscal and monetary policies, while distinct tools, are deeply interlinked and their coordinated
application is vital for achieving macroeconomic stability and sustainable growth.

Key Interconnections:

• Shared Goals, Different Channels: Both aim for economic growth, price stability, full
employment, and financial stability. Fiscal policy impacts aggregate demand directly
(government spending) and indirectly (taxation). Monetary policy influences it by
affecting borrowing costs (interest rates).
• Policy Mix Synergy: The effectiveness of one policy hinges on the other. Expansionary
fiscal policy gains traction with accommodative monetary policy, and contractionary
monetary policy is reinforced by fiscal restraint.
• Debt Dynamics & Monetary Policy: Large fiscal deficits can pressure interest rates
upwards, potentially crowding out private investment and complicating monetary policy
implementation. Central bank actions in managing government debt can blur policy
boundaries.
• Inflation Management: Monetary policy is the primary inflation control mechanism.
Fiscal policy plays a supporting role by managing aggregate demand through spending
and taxation.
 • Exchange Rate Sensitivity: The interplay between fiscal and monetary stances
influences exchange rates. For instance, expansionary fiscal policy with tight monetary
policy can strengthen a currency.
• Crisis Coordination is Key: Economic crises necessitate synchronized fiscal and
monetary stimulus to prevent severe downturns, as demonstrated in the 2008 and
COVID-19 events.

In essence, fiscal and monetary policies are not independent levers but rather interconnected
components of a comprehensive macroeconomic strategy. Their harmonious interaction plays
significant role for managing g economic challenges and fostering long-term prosperity.

Inflation:
• Inflation means a sustained increase in the general price level of goods and services.
• Each unit of currency buys less due to reduced purchasing power.
• It's measured as a percentage change in a price index over time.
• Increased demand or rising production costs can cause it.
• Inflation impacts interest rates, wages, and economic stability.

Causes of Inflations

• Increased Consumer Spending

• Government Spending
• Increased Export Demand
• Asset Bubbles
• Population Growth
• Rising Raw Material Costs
• Wage Increases
• Supply Chain Disruptions
• Decreased Productivity
• Increased Taxes and Regulations
• Increased Money Supply
• Devaluation of Currency
• Inflationary Expectations
• Hoarding
• Structural Issues

Types of inflation

1. Demand-Pull Inflation:

• Occurs when aggregate demand in an economy exceeds aggregate supply.

• Often described as "too much money chasing too few goods."
 • Can be triggered by increased consumer spending, government spending, or export
demand.
• Leads to rising prices as businesses can't keep up with demand.
• Typically happens when the economy is growing and unemployment is low.

2. Cost-Push Inflation:

• Arises when the costs of production (like wages or raw materials) increase.
• Businesses respond by raising prices to maintain their profit margins.
• Can be caused by supply shocks, such as a sudden increase in oil prices.
• May lead to decreased aggregate supply as production becomes more expensive.
• Can result in a wage-price spiral if workers demand higher wages to compensate for
rising prices.

Structural Inflation:

Structural inflation is persistent price increases stemming from deep-rooted issues within an
economy, not just demand or cost pressures. Often seen in developing countries with rigidities
like:

• Inelastic supply: Key sectors (agriculture, industry) can't easily boost output due to
bottlenecks (poor infrastructure, technology, skills).
• Market imperfections: Monopolies and inefficiencies hinder smooth price adjustments.
• Government policies: Certain interventions can worsen inflation.
• External dependence: Reliance on imports exposes the economy to global price shocks.
• Rooted in economic structure issues.
• Includes supply chain inefficiencies, market rigidities.
• Not easily fixed by typical policies.
• Needs long-term, systemic changes.
• Examples: agricultural bottlenecks, lack of skilled labor.

Consequences of inflation:

For Individuals and Households:

• Reduced purchasing power

• Increased cost of living
• Diminished value of savings
• Uncertainty in financial planning
 • Increased income inequality
• Higher borrowing costs

For Businesses:

• Increased costs
• Uncertainty and reduced investment
• Menu costs
• Difficulty in pricing
• Reduced consumer demand
• Wage pressure

For the Overall Economy:

• Reduced economic growth

• Increased interest rates
• Currency depreciation
• Social and political instability
• Difficulty in international competitiveness

ways to reduce inflation

• Fiscal Discipline
• Boost Agricultural Productivity
• Improve Supply Chain Infrastructure
• Manage Trade and Imports
• Exchange Rate Stability
• Combat Hoarding and Speculation
• Encourage Domestic Industries
• Invest in Hydropower
• Channel Remittances Productively
• Economic federalism
• Regulation of informal sector
•
Liberalization:
Liberalization is the process of reducing government control and increasing the role of the free
market in the economy.

Government control over the economy is reduced.

Market forces play a larger role in the economy.
Businesses and individuals have more economic freedom.
Competition is increased domestically and internationally.
Private businesses become the main drivers of the economy.

TYPES LIBERALIZATION

Economic Liberalization:
• Reduces overall government intervention in the economy.
• Promotes free markets and private enterprise.
• Emphasizes deregulation across various sectors.
• Encourages competition and efficiency.
• Aims for greater reliance on market forces.

Trade Liberalization:
• Lowers or removes tariffs on imported goods.
• Eliminates or reduces quotas on imports and exports.
• Simplifies customs procedures and regulations.
• Promotes free trade agreements with other nations.
• Encourages international exchange of goods and services.

Financial Liberalization:
• Deregulates banking and financial institutions.
• Eases restrictions on capital flows (in and out of the country).
• Promotes the development of stock markets and bond markets.
• Reduces government control over interest rates and exchange rates.
• Encourages private sector participation in finance.

Industrial Liberalization:
• Reduces licensing requirements for businesses.
• Deregulates production processes and capacities.
• Encourages private investment in industries.
• Promotes competition among industrial players.
• Aims to increase efficiency and productivity in manufacturing.

Investment Liberalization:
• Simplifies rules for foreign direct investment (FDI).
• Offers incentives to attract foreign investors.
• Reduces restrictions on the sectors where foreign investment is allowed.
• Streamlines approval processes for investments.
• Encourages both domestic and international capital flow.

Fiscal Liberalization (Tax Reforms):

• Simplifies the tax structure and reduces complexity.
• Broadens the tax base to include more individuals and entities.
• Often involves lowering overall tax rates.
• Aims to improve tax compliance and reduce evasion.
• Can include shifting towards more consumption-based taxes.

Labor Market Liberalization:

• Eases regulations on hiring and firing employees.
• Reduces the power of labor unions in some aspects.
• Promotes more flexible wage determination.
• Aims to increase labor market efficiency and responsiveness.
• Can involve reforms to unemployment benefits and social security.

Capital Account Liberalization:

• Removes restrictions on the flow of money for investment purposes.
• Allows easier cross-border transactions in assets like stocks and bonds.
• Facilitates international borrowing and lending.
• Can make a country more attractive for foreign investment.
• Requires careful management to avoid financial instability.

Services Sector Liberalization:

• Opens up service industries to private sector competition.
• Reduces government monopolies in areas like telecommunications and transportation.
• Allows foreign companies to provide services domestically.
• Aims to improve the quality and efficiency of services.
• Can lead to greater choice and potentially lower prices for consumers.
Price Liberalization:
• Removes government-imposed price controls on goods and services.
• Allows prices to be determined by supply and demand.
• Aims to eliminate shortages and surpluses caused by artificial pricing.
• Can lead to price fluctuations based on market conditions.
• Encourages efficient allocation of resources based on true costs.

Nepal's liberalization efforts:

Trade Liberalization:

• Nepal reduced import quotas in stages.

• The government lowered import tariffs over time.
• Import licensing requirements were largely removed.
• Full convertibility for current account transactions was introduced.
• Nepal became a member of the World Trade Organization in 2004.
• The country participates in SAFTA and BIMSTEC regional blocs.
• Nepal has signed various bilateral trade agreements with partners.
• The Trade Policy of 2009 aimed to modernize the economy through trade.
• Maximum tariff rates have been gradually reduced.
• Tariff bands were simplified for easier understanding.
• Customs procedures are undergoing modernization efforts.
• Alignment with international SPS measures is being pursued.
• Technical barriers to trade are being addressed.
• Transit agreements facilitate trade with neighboring countries.
• Policies and incentives aim to promote exports of Nepali products.
• Existing trade agreements are subject to periodic review.

Financial Liberalization:

• Private sector entry into commercial banking began in 1984.

• Interest rates were fully deregulated by August 1989.
• Finance companies were permitted to operate starting in 1985.
• Expansion of commercial bank branches was encouraged nationwide.
• Prudential norms were introduced and subsequently revised.
• Monetary policy shifted towards indirect control mechanisms in 1989.
• Nepal accepted IMF Article VIII status in 1994.
• Deregulation and privatization of financial institutions continued in the 1990s.
• Some restrictions on capital account transactions have been gradually eased.
• Non-bank financial institutions are now under stricter regulation.
• Payment and settlement systems are being modernized for efficiency.
• The Nepal Rastra Bank is strengthening its supervisory capacity.
• Measures against money laundering and terrorism financing are being implemented.
• Rules regarding the holding and use of foreign exchange have been liberalized.
• Efforts are underway to promote greater financial inclusion.
Investment Liberalization:

• A focus on attracting investment began after 1990.

• Investment-friendly policies and institutions were established.
• The Industrial Policy of 1992 liberalized many sectors.
• The FDI and Technology Transfer Policy of 1992 aimed to attract foreign capital.
• Various incentives are offered to foreign investors.
• The Investment Board was created to facilitate foreign investment.
• Nine laws were amended in 2024 to ease investment processes.
• Ordinances in 2025 further aim to improve the investment climate.
• Sector-specific policies target key areas for investment.
• Public-Private Partnerships are encouraged for infrastructure projects.
• Legal frameworks for intellectual property rights are being strengthened.
• Addressing complexities in land acquisition remains an ongoing challenge.
• Labor law reforms are a subject of ongoing discussion and some implementation.
• Special Economic Zones are being established and operationalized.
• Company registration and operation procedures are being simplified.
• Various tax incentives are provided to attract investment.
• Bilateral Investment Treaties have been signed with other nations.

Positive Impacts of liberalization:

• It often leads to higher rates of economic growth.
• Efficiency in various industries tends to improve.
• Consumers gain access to a wider array of choices.
• Prices for many goods and services may decrease.
• It can attract increased foreign direct investment (FDI).
• Liberalization fosters greater competition in markets.
• Innovation and technological advancements are often spurred.
• It facilitates smoother international trade flows.
• Domestic industries can gain better access to global markets.
• Privatization can lead to more efficient management of enterprises.
• Financial liberalization can result in better capital allocation.
• Reduced tariffs can lower the cost of imported goods.
• It can simplify complex regulatory environments.
• New employment opportunities may be created.
• Overall living standards have the potential to increase.

Negative Impacts of liberalization:

• It can lead to increased income inequality and social disparities.
• Domestic industries, especially nascent ones, may struggle to compete.
• Job losses can occur in sectors facing intense foreign competition.
• It may result in a greater dependence on foreign capital and markets.
• Financial liberalization can increase the risk of economic instability.
• Environmental regulations might be weakened to attract investment.
• Labor standards could be compromised in the pursuit of lower costs.
• Essential public services might be neglected due to privatization.
• Small-scale local businesses may be marginalized.
• Cultural homogenization can occur due to the influx of foreign goods.
• Developing nations might face pressure to adopt unfavorable policies.
• The exploitation of natural resources could accelerate.
• Tax revenue for governments might decrease due to lower tariffs.
• Vulnerability to global economic shocks can increase.
• It may lead to a race to the bottom in terms of wages and regulations.

Challenges of economic liberalization:

Challenges Brought by Economic Liberalization:
• Instability seen in sovereignty,
• Inability of weak countries to survive in a competitive environment,
• Cultural challenges (Cultural Diversity),
• Rapid urbanization due to large-scale migration,
• Environmental destruction due to uncontrolled development,
• Gap in the use of information technology,
• Repeated shocks due to global economic recession,
• Transition from government monopoly to private monopoly,
• Weak state capacity leading to a lack of control even within one's own territory,
• Adoption of a "one-size-fits-all" policy for all countries.

Positive and negative impacts of liberalization in Nepal's banking system:

Positive Impacts:

• Increased competition among banks.

• Greater efficiency in banking operations.
• Wider array of financial products and services.
• Expansion of the financial sector (financial deepening).
 • Improved access to credit for some segments.
• Attraction of foreign investment in the banking sector.
• Introduction of new technologies and expertise.
• Strengthened regulatory capacity of Nepal Rastra Bank (NRB).
• Potential contribution to overall economic growth.
• Stimulation of savings due to potentially higher interest rates.

Negative Impacts:

• Increased potential for financial instability.

• Possible widening of income inequality.
• Decline in credit provision to the rural poor.
• Risk of unhealthy competition among institutions.
• Potential for a rise in non-performing loans (NPLs).
• Challenges related to liquidity management in the system.
• Increased vulnerability to external economic shocks.
• Possibility of some domestic banks struggling to compete.
• Potential for regulatory arbitrage and circumvention.
• Risk of asset bubbles due to increased credit availability.

The Way Forward for Liberalization:

• Forging a common consensus among political parties on the issue of liberalization.

• Adopting a policy of state protection for the agricultural sector, which serves as the
backbone of the economy.
• The capital, technology, skills, and experience of urban areas must be extended to rural
areas.
• Strengthening the state's presence in sectors like education and health to develop quality
human capital.
• Developing the internal capacity of the economy.
• Providing tax concessions to those returning from foreign employment to start
businesses.
• Adopting a rural development model based on cooperatives, without viewing the
cooperative sector as a rival to the private sector.
• Entering into more and more BIPPA agreements with various countries to create an
investment-friendly environment.
• Making economic diplomacy effective.
• Introducing programs to protect national industries.
• Adopting policies that specifically encourage employment growth, import substitution
industries, export promotion, and labor-intensive technology industries.
• Promoting the production and export of goods with comparative and competitive
advantages.
• Reducing tax rates and expanding the tax base.
• Attracting foreign investment by creating a favorable investment climate.
 • Expanding the state's capacity in monitoring the financial sector.
• Adopting a rural development model based on cooperatives, without viewing the
cooperative sector as a rival to the private sector.
• Entering into more and more BIPPA agreements with various countries to create an
investment-friendly environment.
• Making economic diplomacy effective.
• Introducing programs to protect national industries.
• Adopting policies that specifically encourage employment growth, import substitution
industries, export promotion, and labor-intensive technology industries.
• Promoting the production and export of goods with comparative and competitive
advantages.
• Reducing tax rates and expanding the tax base.
• Attracting foreign investment by creating a favorable investment climate.
• Expanding the state's capacity in monitoring the financial sector.
• Implementing programs for import substitution and export promotion.

Differences between privatization, globalization, and liberalization

Feature Privatization Globalization Liberalization

Definition Transfer of Increasing Reduction of
ownership/control of interconnectedness and government
state-owned enterprises interdependence of regulations and
to the private sector. economies, societies, and restrictions in an
cultures worldwide. economy or specific
sectors.
Focus Ownership and International integration Government control
management of assets. and interdependence. and market
freedom.
Goal Increase efficiency, Expand markets, access Enhance
reduce government resources, foster economic competition,
burden, attract private growth and cultural improve efficiency,
investment. exchange. promote economic
development.
Mechanism Sale of public assets, Cross-border trade, Deregulation, tax
management contracts, investment flows, reforms, trade
concessions. technological liberalization,
advancements, migration, reduced barriers to
information exchange. entry.
 Scope Specific sectors or Global, involving multiple Can be domestic
companies within a countries and regions. (within a country) or
country. international (trade).
Impact on Reduces direct state Can influence state policies Decreases state
State Role involvement in the due to international intervention in
economy. pressures and agreements. markets and
economic activities.
Examples Selling a state-owned Multinational corporations, Deregulating prices,
airline or international trade reducing tariffs,
telecommunication agreements (e.g., WTO), opening up financial
company. global supply chains. markets.

Concepts economics:

• Economics is the social science that studies how societies manage their limited
resources to satisfy unlimited wants.
• It analyzes the choices individuals, businesses, and governments make due to scarcity,
and the opportunity costs associated with those choices.
• The field examines how goods and services are produced, distributed, and
consumed within an economy.
• Economics investigates the interplay of markets and government policies in allocating
resources and influencing economic outcomes.
• It is broadly divided into microeconomics (individual and firm decisions)
and macroeconomics (the economy as a whole, including growth, inflation, and
unemployment).

Why Economics?

To understand the fundamental problem of scarcity, where unlimited wants clash with limited
resources, is a core role of economics.

• To help societies decide how to allocate scarce resources efficiently is a key function of
economics.
• To guide individual decision-making regarding spending, saving, and career choices is an
important contribution of economics.
 • To assist businesses in making strategic choices about production, pricing, and
investment is a practical application of economics.
• To inform government policy on taxation, spending, and economic regulation is a vital
role of economics.
• To analyze how markets function, including the interplay of supply and demand, is
central to economic study.
• To study consumer behavior to understand purchasing decisions is a significant area
within economics.
• To examine the behavior of firms in various market structures is crucial for economic
analysis.
• To explore the drivers of economic growth and national prosperity is a major objective of
economics.
• To investigate the causes and consequences of inflation is an important task for
economists.
• To address the issue of unemployment and potential policy solutions is a critical concern
of economics.
• To clarify the dynamics and impacts of international trade is a key aspect of economic
understanding.
• To provide tools for evaluating the costs and benefits of public projects is a practical use
of economics.
• To use data and models to forecast economic trends is an analytical role of economics.
• To contribute to developing solutions for significant societal challenges like poverty and
inequality is a vital societal impact of economics.

I. By Scope of Analysis:

1. Microeconomics:
o Focus: Studies the behavior of individual economic units, such as households,
firms, and individual markets.
o Questions it addresses: How do consumers make purchasing decisions? How do
firms decide what to produce and at what price? How do specific markets (e.g.,
for cars, coffee, or labor) operate?
o Key concepts: Supply and demand, elasticity, market structures (perfect
competition, monopoly, oligopoly), consumer utility, production costs, labor
markets.
2. Macroeconomics:
o Focus: Examines the economy as a whole, looking at aggregate phenomena like
national income, unemployment, inflation, and economic growth.
o Questions it addresses: What causes recessions? How can governments reduce
unemployment? What policies can promote long-term economic growth?
 o Key concepts: Gross Domestic Product (GDP), inflation, unemployment rate,
fiscal policy, monetary policy, business cycles, international trade and finance.

II. By Approach/Purpose:

3. Positive Economics:
o Focus: Describes and explains economic phenomena as they are, based on facts
and empirical evidence. It deals with "what is."
o Characteristics: Objective, testable, and aims to develop theories that can be
proven or disproven by data.
o Example: "An increase in the minimum wage leads to a decrease in employment
for low-skilled workers." (This is a statement that can be tested with data).
4. Normative Economics:
o Focus: Deals with "what ought to be" or "what should be." It involves value
judgments, opinions, and policy recommendations.
o Characteristics: Subjective, prescriptive, and often uses words like "should,"
"ought," or "better."
o Example: "The government should increase the minimum wage to improve the
living standards of low-income workers." (This is a recommendation based on a
value judgment).

III. Specialized Fields/Sub-disciplines:

Beyond the primary micro/macro and positive/normative distinctions, economics branches into
numerous specialized fields:

5. Behavioral Economics: Integrates insights from psychology to understand how

psychological, social, and emotional factors influence economic decision-making, often
challenging traditional assumptions of rationality.
6. Development Economics: Focuses on the economic aspects of the development process
in low-income and middle-income countries, addressing issues like poverty, inequality,
health, and education.
7. Environmental Economics: Studies the relationship between the economy and the
environment, including issues like pollution control, resource depletion, and climate
change, often valuing environmental goods and services.
8. Labor Economics: Analyzes the functioning and dynamics of labor markets, including
wages, employment, unemployment, and the role of unions.
9. Public Economics (or Public Finance): Examines the role of the government in the
economy, including taxation, government spending, and public policy efficiency and
equity.
10. Financial Economics: Deals with the allocation and deployment of economic resources,
both spatially and across time, in an uncertain environment, focusing on financial
markets, institutions, and investment.
11. International Economics: Studies economic interactions between countries, including
international trade, international finance, and exchange rates.
 12. Econometrics: Applies statistical and mathematical methods to economic data to test
theories, estimate relationships, and forecast economic trends.
13. Health Economics: Applies economic principles to the healthcare sector, analyzing
healthcare production, consumption, financing, and policy.
14. Urban Economics: Focuses on the economic organization and development of cities,
including issues like land use, housing, transportation, and local public finance.
15. Agricultural Economics: Applies economic principles to the production, distribution,
and consumption of agricultural products, and the broader rural economy.

Difference between Microeconomics and macroeconomics:

Aspect Microeconomics Macroeconomics

Focus/Scope Studies individual economic units. Studies the economy as a whole
(aggregate).
Unit of Study Individual consumers, firms, National economy, global economy.
industries.
Key Questions Why is the price of coffee rising? What causes unemployment? How
How much should a firm produce? can inflation be controlled?
Key Concepts Supply & Demand, Elasticity, GDP, Inflation, Unemployment, Fiscal
Utility, Costs, Market Structures. Policy, Monetary Policy.
Economic Individual prices, quantities, wages, National income, general price level,
Variables firm output. aggregate employment.
Approach "Bottom-up" approach, looking at "Top-down" approach, looking at the
individual components. entire system.
Problems Resource allocation, pricing, Recession, inflation, unemployment,
Addressed production efficiency, consumer poverty, economic growth.
choice.
Policy Firm-specific policies, industry Government policies (e.g., interest
Implications regulations, consumer protection. rates, taxation, government
spending).
Viewpoint Examines the "trees" in the Examines the entire economic
economic "forest." "forest."

Few microeconomic and macroeconomic variables:

Microeconomic Variables Macroeconomic Variables

Price of a specific good/service Gross Domestic Product (GDP)
Quantity demanded for a specific product Inflation Rate (CPI, PPI)
Quantity supplied by an individual firm Unemployment Rate
Individual consumer's income National Income
Production cost of a specific firm Aggregate Consumption
Wages in a particular industry/occupation Aggregate Investment
Market share of a specific company Government Spending
Utility (satisfaction) of an individual consumer Interest Rates (e.g., policy rate)
Revenue/Profit of a single business Exchange Rates
Demand for a specific factor of production (e.g., labor in the Balance of Payments (Trade
tech industry) Balance)
Supply of a specific commodity Money Supply
Consumer surplus/Producer surplus in a specific market Economic Growth Rate

Why Microeconomics?

• Explains individual choices.

• Guides business decisions.
• Shows how markets work.
• Aids efficient resource use.
• Informs specific public policies.
• Forms the base for other economic fields.
• Is relevant in daily life.

Why Macroeconomics?

• Addresses national economic performance.

• Understands economic growth.
• Manages inflation and unemployment.
• Informs government fiscal policy.
• Guides central bank monetary policy.
• Analyzes international trade and finance.
• Studies business cycles and recessions.
• Addresses broad societal economic issues.