UPSC Prelims 2000 Q49: Indian Economy – National Income & Economic Growth
- (a) growth of population
- (b) increase in price level
- (c) growth of money supply
- (d) increase in the wage rate
Answer: (b) increase in price level
Explanation
Per capita income at current and constant prices
| Measure | What it includes |
|---|---|
| Per capita income at current prices | Income valued at this year's prices — includes inflation |
| Per capita income at constant prices | Income valued at base-year prices — removes the rise in the price level |
| Population growth | Divides both measures equally |
Per capita income is national income divided by population.
At current prices, income is measured at the prices of the same year, so it grows both because output rises and because prices rise.
At constant prices, income is measured at the prices of a fixed base year, which takes out the increase in the price level.
That is why the current-price growth rate is higher whenever there is inflation.
Population growth affects both measures in the same way, so it does not explain the gap.
Answer: (b) increase in price level.
Why each option is right or wrong
- (a) Incorrect. Population growth enters both measures equally.
- (b) CORRECT. The constant-price measure removes the rise in the price level.
- (c) Incorrect. Money supply growth matters only through prices; the measure corrects for prices directly.
- (d) Incorrect. Wage rates are not what the constant-price series adjusts for.
Key point
Real (constant price) = nominal (current price) ÷ price index.
Remember
Constant prices correct for the price level; per capita corrects for population.
Common mistakes
- Choosing population growth because 'per capita' is in the question.
- Choosing money supply, which is only an indirect cause of inflation.
- Mixing up which of the two measures removes inflation.
Exam tip
Current price minus inflation = constant price.
Sources
- Central Statistical Organisation — National Accounts Statistics 2000, concepts and definitions (mospi.gov.in)
- NCERT — Introductory Macroeconomics, Class XII, chapter 'National Income Accounting'