Question

Read the following statements carefully :

Statement 1 : Real National Income is always less than Nominal National Income.

Statement 2 : Real National Income is the money value of all the final goods and services produced by the normal residents of an economy in an accounting year, measured at the base year prices.

In the light of the given statements, choose the correct alternative from the following :

• A. Statement 1 is true and Statement 2 is false.
• B. Statement 1 is false and Statement 2 is true.
• C. Both Statements 1 and 2 are true.
• D. Both Statements 1 and 2 are false.

Hint:

Real income uses base year prices, so it can be more than, equal to or less than nominal income. The word always makes Statement 1 false. Statement 2 is the correct definition.

Answer 1

The Correct Option is B

Step 1: Understand what is being tested:
The question gives two statements about Real National Income and asks which pair of true/false verdicts is correct.
Real National Income is national income valued at base year prices. Nominal National Income is valued at current year prices.

Step 2: Check Statement 1:
Statement 1 says real income is always less than nominal income. The word always makes it wrong.
Real income is nominal income adjusted for the price level. It is lower only when current prices are higher than base year prices.
If current prices fall below base year prices, real income becomes higher than nominal income. If prices stay the same, the two are equal.
Example: output of 100 units, base year price Rs. 10, current price Rs. 8. Nominal income is Rs. 800 and real income is Rs. 1,000. Real is more than nominal here.
So Statement 1 is FALSE.

Step 3: Check Statement 2:
Statement 2 defines Real National Income as the money value of all final goods and services produced by normal residents in a year, measured at base year prices.
This is the standard textbook definition. Fixed base year prices remove the effect of price change, so only the change in output shows.
So Statement 2 is TRUE.

Step 4: Match with the options:
Statement 1 false and Statement 2 true matches option (B).
Option (A) is wrong because it calls Statement 1 true and Statement 2 false, which is the reverse.
Option (C) is wrong because Statement 1 is not true.
Option (D) is wrong because Statement 2 is true.

Final Answer:
Statement 1 is false and Statement 2 is true. The correct option is (B).