Per capita income current vs constant prices — UPSC Prelims PYQ 2000
The growth rate of per capita income at current prices is higher than that of per capita income at constant prices, because the latter takes into account the rate of:
- growth of population
- increase in price level
- growth of money supply
- increase in the wage rate
Explanation
Option (b) is correct
- Per capita income at current prices (nominal income) is calculated using prevailing market prices and therefore includes the effect of inflation. Per capita income at constant prices (real income) is adjusted for inflation and reflects only the actual increase in output or purchasing power. Since constant price calculations remove the effect of rising prices, their growth rate is usually lower than that at current prices during inflationary periods. Hence, the difference arises because constant prices take into account the increase in price level.
Answer: (b) increase in price level
