Differentiate between national income at the current price and national income at a constant pri

To differentiate between national income at the current price and national income at a constant price, we need to understand the concept of price level and its impact on national income calculations.

1. National Income at Current Price:

   • National income at the current price refers to the total value of goods and services produced within a country during a specific period, measured at the current market prices.
   • It takes into account the prevailing prices of goods and services in the economy at the time of production.
   • This measure includes the effects of both changes in the quantity of goods and services produced and changes in their prices.

2. National Income at Constant Price:

   • National income at a constant price, also known as real national income, is a measure that adjusts for changes in the price level over time.
   • It reflects the actual changes in the quantity of goods and services produced, excluding the impact of price changes.
   • To calculate national income at a constant price, a base year is chosen as a reference point, and the quantities of goods and services produced in subsequent years are valued at the prices prevailing in the base year.
   • This measure helps to analyze the real growth of an economy by eliminating the effects of inflation or deflation.

In summary, national income at the current price considers both changes in the quantity of goods and services produced and changes in their prices, while national income at a constant price adjusts for changes in the price level and focuses on the real changes in the quantity of goods and services produced.