What is the difference between Money National Income and Real National Income?
Money income refers to the command over goods and services available in the economy. Real income is National Income or National Income at Constant Prices (NICOP). It is the rate of growth of NICOP that signifies rate of economic growth. Whereas money income is measured in terms of National Income at Current Prices (NICUP), real income is measured in terms of National Income at Constant Prices (NICOP). NICOP is measured with reference to price level of a choose year, which is called base year. A base year is used for academic reference and changes with time.
Real income is a better indicator of economic growth. The rate of change of NICOP during the year gives the rate of growth during the year. Thus, if NICOP increases by 5.4% during a given year, then in terms of economic growth it signifies 5.4% actual increase in physical production of goods and services. For e.g. Consider period between 1995-99, when money income increased by 66.67 percent, whereas national income increased by 40 percent on basis of per unit prices of commodity.