Question

Distinguish between national income at current and national income of constant prices?

Distinguish between national income at current prices and national income at constant prices.

Answer 1

Basis of Comparison	National Income at Current Prices	National Income at Constant Prices
Definition	It is the money value of final goods and services produced in a year, measured using market prices from the same year.	It is the money value of final goods and services produced in a year, measured using prices of a fixed base year.
Factors	A rise in national income measured at current prices may result from either producing more goods and services or from a rise in their prices, or both.	A rise in national income at constant prices shows a true increase in the production of goods and services, signaling actual economic growth.
Limitations	This measure does not truly capture the actual growth of an economy, as it can be influenced by inflation.	It allows for a clearer comparison of economic performance across different years by eliminating the impact of inflation.
Example	If the quantity of goods and services produced remains the same as the previous year but prices go up, national income at current prices will still increase, even though there has been no real increase in production.	If a nation produces a larger quantity of goods and services in a particular year, the national income at constant prices will capture this real growth, regardless of any changes in prices.
Usefulness	Useful for analyzing the current market value of output.	Useful for comparing real output growth over different years.
Conversion	It is converted to constant prices using a price index.	Already adjusted for inflation using base year prices.