1. Gross Domestic Product (GDP)
“The total market value of all final goods and services produced within given country in a given period
of time usually one year.”
Reasons for low and High GDP of a country: High GDP is due to the people in a country being more
productive because they are healthier, better educated/trained and have more capital plant and
equipment to enhance their productivity and better infrastructure. However only rich countries can provide
these things so it is not really the answer. At one time all rich countries were poor but at some point in
their history they got a little ahead of the game and accumulated extra resources and improve conditions
which then escalated over time. Economist debate over why this happens but they agree that free
markets and property rights are a necessary but not sufficient. If we knew how to trigger growth there
would not be any poor countries.
Why does some countries have high gdp and some low gdp: A country with a high GDP has either
high net exports (exports-imports) wherein it is has a good performance in trade, high FDI
(foreign direct investment) from private firms outside the country, high consumption (its
citizens are able to spend and acquire goods), and high government spending either for
technological advancement, labor development, and infrastructure. As one can clearly see
that the countries in the list below, top 5, are worldwide known for good GDP, just because
of the above reasons.
A country has low GDP, because it’s imports are more than its exports, second reason is
that it has poor performance in trading, and has low FDI from private firms outside the
country, low consumption because it’s citizens are not able to spend and acquire goods and
one of the most fundamental reason is that government doesn’t spend on welfare and for
development, that’s why some countries has low GDP.
1. USA = 15094.00 billion US dollars in 2011
2. China = 7298.10 billion US dollars in 2011
3. Japan = 5867.15 billion US dollars in 2011
4. Russia = 1857.77 billion US dollars in 2011
5. India = 1847.98 billion US dollars in 2011
6. Singapore = 239.70 billion US dollars in 2011
7. Pakistan = 211.09 billion US dollars in 2011
8. Indonesia = 166.54 billion US dollars in 2011
9. Bangladesh = 110.61 billion US dollars in 2011
10. Sri Lanka = 59.17 billion US dollars in 2011

2. Inflation rate:
”The rate of change of prices (as indicated by a price index) calculated on a monthly or
annual basis.”
Inflation Rate Cause #1: An increase in demand for goods relative to supply. When more people
fight over fewer goods, the price increases. It is just as true for an entire country as it is for a
lamp on eBay. We have seen an increase inthe inflation rate, in part, because countries like
China and India, which had virtually no industrial base a few generations ago, have billions of
citizens poised to enter the middle class in the coming years. That means that the fixed, small
supply of global copper, silver, gold, and other commodities will be bidded upon by a much
larger group of potential buyers, driving up prices. In the past, a handful of industrialized
nations, such as the United States, Canada, Australia, Great Britain, Germany, France, Italy,
Russia, etc. were the only ones in the game when it came to requiring oil or other commodities.
That time has passed.
Inflation Rate Cause #2: An decrease in the value of each existing nominal unit of currency.
Don't panic - it isn't nearly as complicated as it sounds. It's another way to say a government is
printing money. If governments print money and depreciate their own currency, each dollar will
buy fewer goods because dollars are less scarce. Think about it. If a school teacher is suddenly
earning $150,000 per year, she is going to be able to walk into a Maserati dealer and buy a car.
But Maserati production is limited - the company can only churn out a fixed number of high-
quality automobiles each year. As more money floods the economy, the relative income of
different professions isn't likely to change, so lawyers who made $100,000 before the inflation
increase might be making $300,000. That means the teachers won't be able to compete with the
lawyers - still - and the price of Maserati’s will double or triple. That is, the numbers on price
tags changes but the relative purchasing power of the individual citizens hasn't changed. The
teacher won't be able to afford the car but the lawyer will. The people who get hurt are those
who have large investments and other fixed incomes such as Social Security.
By reading the above two most fundamental reasons, it is clear that why countries like Japan,
USA, China etc. has inflation rate under control, while in countries like Pakistan, Bangladesh etc.
has high inflation rate.
1. Japan = -0.40 percent in July of 2012
2. USA = 1.40 percent in July of 2012
3. China = 1.80 percent in July of 2012
4. Singapore = 4.00 percent in July of 2012

3. 5. Indonesia = 4.58 percent in August of 2012
6. Russia = 5.90 percent in August of 2012
7. Sri Lanka = 6.00 percent in July of 2012
8. India = 6.87 percent in July of 2012
9. Bangladesh = 8.03 percent in July of 2012
10. Pakistan = 9.60 percent in July of 2012
Per capita income:
“Per Capita Income means the average income of whole population in a country in a
year.”
CAUSES -OR- REASONS OF LOW PER CAPITA INCOME:
Causes of low per capita income may be divided into following three categories:
A. Economic Causes
B. Social Causes
C. Political Causes
A. ECONOMIC CAUSES
Following are the economic causes of low per capita income:
1. Vicious Circle of Poverty
Vicious circle of poverty is the largest reason of low per capita income. Developing
countries including Pakistan are trapped into VCP. A poor country is poor forever due to the
VCP. 21.0 % population is very poor population in Pakistan.
2. Unemployment
Unemployment is the major cause of low per capita income. Unemployment means no
source of income and result is low per capita income. Rate of unemployment is 5.5 %, 16 % is
underemployed and 20% is disguised unemployed in Pakistan.
3. Lack of Foreign Investment
Due to backwardness, political instabilities and improper availability of infrastructure the
attraction for foreign investment is not suitable. Foreign investment (Jul-Mar) is $ 1.8 billion in
Pakistan. Foreign investment is reduced by 45%. Lack of foreign investment means less
employment opportunities and low per capita income.
4. Low National Income

4. Low per capita income in Pakistan is also the result of low level of national income. Low
level of national income means low level of saving and low level of investment. All these factors
contribute toward poverty.
5. Use of Backward Technology
Techniques of productions used by developing countries are backward. Due to out-dated
methods of production, productivity level is low. Low level of productivity means narrowness of
market and reduction in exports and increase in imports.
6. Increase in Utility Charges
Utility charges like water, gas, electricity, telephone bills etc. are increasing day by day in
Pakistan. More utility charges lead to reduction in the saving of population and its result is low
per capita income. At present growth rate of electricity and gas sector is 0.4 %.
7. Poverty
Poverty in Pakistan is very common, 21.0 % population is treated as poor population.
Poverty is also a cause of low per capita income. Low per capita income means low level of
saving and low level of investment. Its result is poverty.
8. Backward Agricultural Sector
People have adopted just subsistence farming styles in agriculture sector. They are not
farming according to the commercial patterns. Sometimes, due to natural calamities and use of
backward techniques of production, there is reduction in production and it decreases the income
of poor farmers. Its share in GDP is only 21.5 %.
9. Absence of Credit Facilities
Poor population is needed credit facilities to take an active part in economic activities to
remove low per capita income. But in Pakistan, availability of credit is not desirable. Poor people
has no access to credit it is only for rich landlords. Conditions for credit issuing are so tights and
credit is not given in time.
10. Improper Income Distribution
Imbalanced distribution of resources is an additional cause of low per capita income in
Pakistan. This situation leads to increase the gap between rich and poor. Due to undesirable
distribution of income and wealth, poor population is unable to take part in economic activities to
remove poverty. 20 % rich population has complete control over the 50 % national resources in
Pakistan.
11. Low level of Productivity
Due to use of backward technologies and inefficiencies of labour& entrepreneur,
productivity level in Pakistan is very low as compare to developed countries. Value of annual
productivity of Pakistani labour is much lower than the value of labour of rich nations. Annual
value of productivity of labour is only $ 100 against $ 2500 in advanced countries in Pakistan.

5. 12. Low level of Saving
Low level of saving is mainly due to low income. It leads to less investment and less
return. Due to less return people remains poor forever. Domestic savings are 9.9 % of GDP.
Low level of saving means low per capita income in Pakistan.
13. Inflation
High rate of inflation is an extra reason for low per capita income. Due to inflation much
amount of money is not enough to purchase much quantity of goods and services. Inflation
decreases the savings and investments of poor people. Rate of inflation (CPI) is 13.3 % in
Pakistan.
14. Imposition of Taxes
Government has to impose taxes to raise its revenue. Imposition of taxes reduces the
disposable income of people. Lack of disposable income means low saving and low investment,
poverty and low per capita income. Amount of FBR tax collected is Rs.1380 billions.
15. Non-Productive Expenditures
Government has to make a lot of unproductive expenditures on social heads and to
make strong defence. These high expenditures are also a reason of low per capita income.
16. Low Rate of Capital Formation
Rate of capital formation in Pakistan is very low. Low rate of capital formation means low
opportunities of employment, low level of productivity and deficit in balance of payment that
leads to low per capita income. Rate of capital formation is just 5 % in Pakistan.
B. SOCIAL CAUSES
Following are the social causes of low per capita income:
17. Population Pressure
Rapidly rising population is also a cause of poverty. Existing population is already not
provided basic necessities of life. Therefore, increase in population will lead to decrease the per
capita income. Now population of Pakistan is 169.94 million with growth rate of 2.05 %.
18. Dishonesty & Corruption
Low per capita income is also due to dishonesty and corruption in management. Officers
receive a huge amount of illegal money for the legal and illegal job. These unnecessary
payments reduce the savings of poor and result is low per capita income.
19. Illiteracy
Lack of education and training is also a cause of low per capita income. It reduces the
abilities to work. Sometimes a worker due to illiteracy remains unemployed or underemployed.
Similarly, lack of skill in entrepreneur also reduces his profit and its result is low per capita
income. Literacy rate in Pakistan is 57 %.

6. 20. Backward Infrastructure
Non-availability or availability of backward infrastructure is also an additional reason of
low per capita income and poverty. Low level of education, backward state of technology, poor
health, inefficiency of labour and poor system of transportation & communication are cause
low per capita income and poverty. Backward infrastructure causes low attraction for foreign
investment.
21. Low Living Standard
Pressure of foreign counties in our economic activities, backward standard of
productivities and improper basic facilities to population reduces the living standard of
population. Low living standard is a symbol of low per capita income. Expenditure on health
sector is only 0.55 % of GDP.
C. POLITICAL CAUSES
These are some political causes of low per capita income:
22. Law and Order
Law and order conditions are at their poor stage. A huge portion of saving of population
is wasted in costly and lengthy legal process that leads to low per capita income. Chief Justices
Iftikhar Muhammad Chohdery himself has to wait for a very long time.
23. Poor Governance
Instable government and instability in the policies of government are another cause of
low per capita income and poverty. Every government remains failed to establish such policy
that leads to reduce the poverty.
24. Landlordism
Ignorant but big landlords control our whole economy. They have no sense of social
welfare. In government they take those actions that are in their personal interest. Their actions
badly affect the encouragement of per capita income
25. Nepotism
Nepotism means the murder of talent and abilities. It refers to the employment
opportunities according to relation not according to worth. If population is poor but is talented it
remains poor due to nepotism. 16 % employed labour force is performing their services below
their capabilities.
Conclusion:
Per capita income of Pakistan is very low as compare to the per capita incomes of rich
nations. Use of modern technologies and control on population is necessary to improve the per
capita income.

7. 1. USA = 38491.54US dollars in December 2011
2. Japan = 35510 US dollars in December 2011
3. Singapore = 33529.83 US dollars in December of 2011
4. Indonesia = 4667.96 US dollars in December of 2011
5. Russia = 3052.15 US dollars in December of 2011
6. Sri Lanka = 2835.41 US dollars in December 2011
7. China = 2634.71 US dollars in December of 2011
8. Bangladesh = 1788.30 US dollars in December of 2011
9. India = 1488.52 US dollars in December 2011
10. Pakistan = 672.10 US dollars in December of 2011
Gross National Product (GNP)
“An economic statistic that includes GDP, plus any income earned by residents
from overseas investments, minus income earned within the domestic economy by
overseas residents.”
GNP is a measure of a country's economic performance, or what its citizens produced (i.e.
goods and services) and whether they produced these items within its borders.
There is an old joke among economists that states: A recession is when your neighbor loses his job. A
depression is when you lose your job.
The difference between the two terms is not very well understood for one simple reason: There is not
a universally agreed upon definition. If you ask 100 different economists to define the terms recession
and depression, you would get at least 100 different answers. I will try to summarize both terms and
explain the differences between them in a way that almost all economists could agree with.
Recession: The Newspaper Definition
The standard newspaper definition of a recession is a decline in the Gross Domestic Product (GDP) for
two or more consecutive quarters.
This definition is unpopular with most economists for two main reasons. First, this definition does not
take into consideration changes in other variables. For example this definition ignores any changes in
the unemployment rate or consumer confidence. Second, by using quarterly data this definition makes
it difficult to pinpoint when a recession begins or ends. This means that a recession that lasts ten
months or less may go undetected.

8. Recession: The BCDC Definition
The Business Cycle Dating Committee at the National Bureau of Economic Research (NBER) provides a
better way to find out if there is a recession is taking place. This committee determines the amount of
business activity in the economy by looking at things like employment, industrial production, real
income and wholesale-retail sales. They define a recession as the time when business activity has
reached its peak and starts to fall until the time when business activity bottoms out. When the
business activity starts to rise again it is called an expansionary period. By this definition, the average
recession lasts about a year.
Depression
Before the Great Depression of the 1930s any downturn in economic activity was referred to as a
depression. The term recession was developed in this period to differentiate periods like the 1930s
from smaller economic declines that occurred in 1910 and 1913. This leads to the simple definition of
a depression as a recession that lasts longer and has a larger decline in business activity.
The Difference
So how can we tell the difference between a recession and a depression? A good rule of thumb for
determining the difference between a recession and a depression is to look at the changes in GNP. A
depression is any economic downturn where real GDP declines by more than 10 percent. A recession is
an economic downturn that is less severe.
By this yardstick, the last depression in the United States was from May 1937 to June 1938, where
real GDP declined by 18.2 percent. If we use this method then the Great Depression of the 1930s can
be seen as two separate events: an incredibly severe depression lasting from August 1929 to March
1933 where real GDP declined by almost 33 percent, a period of recovery, then another less severe
depression of 1937-38. The United States hasn’t had anything even close to a depression in the post-
war period. The worst recession in the last 60 years was from November 1973 to March 1975, where
real GDP fell by 4.9 percent. Countries such as Finland and Indonesia have suffered depressions in
recent memory using this definition.
Now you should be able to determine the difference between a recession and a depression without
resorting to the poor humor of the dismal scientists.
1. USA = 15,097,083 billion dollars
2. China = 6,628,086 billion dollars
3. Japan = 5,774,376 billion dollars
4. Germany = 3,549,303 billion dollars
5. France = 2,775,664 billion dollars
6. UK = 2,366,544 billion dollars
7. Italy = 2,146,998 billion dollars

9. 8. Brazil = 2,107,628 billion dollars
9. India = 1,746,481 billion dollars
10. Canada = 1,570,866billion dollars
References/Sources:
http://economics.about.com/cs/economicsglossary/g/gross_national.htm
http://www.investopedia.com/terms/g/gnp.asp#axzz265hl3evy
http://ahsankhaneco.blogspot.com/2011/12/causes-of-low-per-capita-income-of.html
http://www.tradingeconomics.com/search.aspx?q=inflation%20rate%20indonesia&sa=Search&cx=partn
er-pub-3400948010513654:2035820411&cof=FORID:10&ie=UTF-8