Nominal National Income: When the national income is expressed in the prices prevailing , in the year in which it is calculated it is called nominal national income. For example, if the national income of the year 2014 – 15 is calculated as per the prices of 2014-15, it becomes nominal national income.

Defects of Nominal National Income:

• Nominal national Income does not give a clear picture of an economy. If there is rise in prices of goods and services due to scarcity, the nominal national income shows growth in GDP. But it is not true. 
• Difficulty in monitoring the changes in the price of all the goods and services. 
• Existence of non-monetary transaction hinders in the correct calculation of national income.

Real National Income: As the nominal national income does not provide correct picture of an economy, the concept of real national income is developed. The real national income is expressed in terms of base year prices. While calculating National income, a particular year is taken as base year. The price level is assumed to be as 100 for the base year. 

The formula to calculate real national income is as follows:

Real National = Nl for year X Base year price index(100)/Current year price index.