Question

National income expressed at general price level taking a base year into consideration is called

• A. Real National income
• B. Real Per capita income
• C. Personal income
• D. Private income

Hint:

Whenever an economic indicator (like National Income, GDP, or Wages) is described as "real," it means the values have been adjusted for inflation using constant prices from a fixed base year.

Answer 1

The Correct Option is A

Step 1: Understanding the Concept:
National income is the total value of all final goods and services produced by a country in a year.
It can be calculated in two ways:
1. Nominal National Income (at current prices): Calculated using the prices prevailing in the current year.
2. Real National Income (at constant prices): Calculated using the prices of a selected benchmark year (the base year), which filters out the distorting effects of inflation.

Step 2: Detailed Explanation:
Let us analyze each of the national income terms:
1. Real National Income (A):
To determine whether a country's actual physical production of goods and services has grown over time, economists must eliminate the effects of inflation.
They do this by calculating national income using constant prices from a fixed base year.
This is called Real National Income.
If nominal national income increases but real national income remains constant, it indicates that the increase was caused entirely by rising prices (inflation) rather than an increase in physical output.
Therefore, this definition matches the question.
2. Real Per Capita Income (B):
This is the real national income divided by the country's total population.
It measures the average real income per person.
3. Personal Income (C):
This is the total income received by individuals and households in a country from all sources before paying personal income taxes.
4. Private Income (D):
This is the total income earned by private individuals and businesses from both productive work and transfer payments.

Step 3: Final Answer:
National income calculated using prices from a fixed base year is called Real National Income.
Therefore, the correct option is (A).