Question

Distinguish between nominal national income and real national income.

Answer 1

National income at current prices refers to the monetary value of all final goods and services produced by a country’s normal residents during a year, calculated using the market prices of that same year. For example, if India’s national income for 2015–16 is measured using the prices from 2015–16, it is termed ‘national income at current prices’ or nominal national income.

On the other hand, national income at constant prices represents the value of the same goods and services but calculated using the market prices from a chosen base year. For instance, if the base year is 2010–11 and national income for 2015–16 is evaluated at 2010–11 prices, it is called national income at constant prices.