Question

An increase in national income because of an increase in price is called ________.

• A. an increase in national income in real terms
• B. an increase in national income at constant prices
• C. an increase in money national income
• D. an increase in national income at base year prices

Answer 1

Answer: (D)

an increase in national income at base year prices

Base year prices are taken in consideration while calculating the GDP and CPI as well, it is primarily the the year from the prices are taken and then multiplied by the quantities of all services and goods purchased for the following years. So when the prices increase in the current period the national income calculated also increase. This increase is over the base year prices.