Difference between Monetary National Income and Real National Income

Introduction:
National income is an important economic indicator that measures the total value of goods and services produced within a country over a specific period. It provides insights into the overall economic performance and standard of living of a nation. There are two key measures of national income - monetary national income and real national income.

Monetary National Income:
Monetary national income, also known as nominal national income, refers to the total value of goods and services produced within a country during a given period, measured in terms of current market prices. It takes into account inflationary effects and changes in prices over time. Monetary national income is calculated by multiplying the quantity of goods and services produced by their respective market prices.

Real National Income:
Real national income, on the other hand, refers to the total value of goods and services produced within a country during a specific period, adjusted for changes in the price level. It reflects the changes in production volume rather than price fluctuations. Real national income is calculated by adjusting the monetary national income for inflation or deflation using a price index such as the Consumer Price Index (CPI) or the GDP deflator.

Key Differences:

1. Measurement:
- Monetary national income is measured in terms of current market prices, while real national income is adjusted for changes in the price level.
- Monetary national income considers both changes in production volume and changes in prices, while real national income focuses solely on changes in production volume.

2. Effects of Inflation:
- Monetary national income is influenced by inflation, as it includes the impact of rising prices on the value of goods and services produced.
- Real national income eliminates the influence of inflation by adjusting the monetary national income for changes in the price level, providing a more accurate measure of economic growth.

3. Comparability:
- Monetary national income allows for easy comparison of economic performance over time, as it reflects the current market prices.
- Real national income enables meaningful comparisons of economic performance across different time periods, as it eliminates the distorting effects of price changes.

4. Standard of Living:
- Monetary national income may not accurately reflect changes in the standard of living, as it includes the impact of rising prices on the value of goods and services produced.
- Real national income provides a better measure of changes in the standard of living, as it focuses on changes in production volume, which directly impacts the availability of goods and services.

Conclusion:
Monetary national income and real national income are two different measures used to assess the economic performance of a country. While monetary national income takes into account both changes in production volume and prices, real national income adjusts for changes in the price level, providing a more accurate picture of economic growth and changes in the standard of living. Both measures are crucial in understanding the overall economic health and development of a nation.