difficentiate between national income at current price and national income at constant price which of tha two present a better view of the economic of grouwth of the econmic and why
Answers
Answer:
National Income at Current Price:
It is the money value of final goods and services produced by normal residents of a country in a year, measured at the prices of the current year. For example, measurement of India’s National Income of 2013-2014 at the prices of 2013-2014.
i. It is also known as ‘Nominal National Income’.
ii. It does not show the true picture of economic growth of a country as any increase in nominal national income may be due to rise in price level without any change in physical output.
So, in order to eliminate the effect of price changes, national income is also estimated at a constant price.
National Income at Constant Price:
It is the money value of final goods and services produced by normal residents of a country in a year, measured at base year price. Base Year is a normal year which is free from price fluctuations. Presently 2004-2005 is taken as the base year in India. If we measure India’s National Income of 2013-2014 at the prices of 2004-2005, then it is termed as ‘National Income at constant price’.
i. It is also known as ‘Real National Income’.
ii. It shows the true picture of economic growth of a country as any increase in real national income is due to increase in output only.
The National Statistical Commission (NSC), has suggested to revise the base year to 2011-12 from the current base year of 2004-05 for the calculation of new Gross Domestic Product (GDP) of the country.