Most logical answer is as mentioned by Khairey above. Gyan Mani Nepal also proposed that Nepal is named after Nripa people who lived in Nepal and there are many other propositions from many historians based on what Nepal means in other languages.

Do not know for sure whether Prithivi Narayan Shah changed the name of his country to Nepal from Gorakha, but at Rana Bahadur's Shah's reign it was already called Nepal (Tibet-Nepal treaty, Tibeto-Nepal War). My guess is most likely he did, as he switched capital from Gorakha to valley and embraced many cultures and traditions of valley.