National Income at Current Prices- When goods and services produced by normal residents of a country in a given year are estimated at current prices, it is called national income at current prices. Current prices refer to the prices prevailing during the year for which estimates are made. Thus it is estimation of goods and services produced during a year on the basis of the prices of the same year. For national income at current prices, we use same year’s output and same year’s market prices. Such data reflect the state of economic affairs of that year but does not show real change in national income because prices keep on changing.
National Income at Constant Prices- When goods and services produce by normal residents of a country during a year are valued at fixed prices, i.e. prices of the base year, it is called national income at constant prices. Constant prices refer to the prices prevailing in the base year. Every country measures national income both at current prices and constant prices but it is the latter which indicates real change in national income.