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Economics · 2026 · 6 marks
CBSE 2026 · Region 4 · Set 1 · Q17
Read the following passage carefully: The domestic product measures the value of all goods and services arising out of economic activity within a…
Read the following passage carefully :
The domestic product measures the value of all goods and services arising out of economic activity within a country over a specific period, while National Income is the sum total of income earned by all factors of production as a result of the economic activities during a period of time.
National Income includes only those incomes which are derived directly from the current production of goods and services, which are called Factor Incomes.
When National Income is measured at current prices over a number of years, the changes in National Income would include the effect of the changes in production along with the changes in prices. This estimate compared over the period would not be an accurate measure of the overall real increase in production of the country or the economic welfare of the people of the economy.
Therefore, it would be necessary to eliminate the effect of prices, in other words, to recompute the whole series at given prices of one particular base year. National Income, thus computed, is termed as National Income at constant prices.
On the basis of the above passage and common understanding, answer the following questions :
(i)
Differentiate between Domestic Product and National Product.
(ii)
‘National Income measured at constant prices is a better measure of the overall real increase in production of the country.’
Justify the given statement with valid arguments.
Marking-scheme solution
(i) Domestic Product refers to the value of all final goods and services arising out of economic activity within the domestic territory of a country over a specific period of time.Whereas;National Product measures the value of all final goods and services arising out of economic activity undertaken by the normal residents of a country over a specific period of time.(ii) National Income measured at constant prices is a better indicator of the overall real increase in production of the country as it changes only with the change in physical output. Thus, it eliminates the effect of changes in prices, showing the real growth of the economy.In contrast, National Income measured at current year prices might change with the change in output or/and change in prices.
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CBSE Class 12 Economics past-paper question from the 2026 board exam, with the answer as CBSE’s own marking scheme gives it. Where our answers come from.