Which of the following statements is/are correct? 1. Real value should not change in the instance of static output cost and unchanged quantities against falling oil prices. 2. Deflators are to be used separately for inputs and outputs, and this is a practice universally adopted by all economies. Select the answer using the code given below.

Passage

How is deflation done? Most countries use a method called 'double deflation', where input and output prices are deflated separately. Consider a manufacturer importing oil for use in production. If oil prices fall, output prices do not and quantities remain the same, real value added should not change. But if the same deflator is used for inputs and outputs, as in India, it would look as if the manufacturer had become more productive.

QUESTION

CSAT

Hard

Comprehension

Prelims 2026

Which of the following statements is/are correct?

Real value should not change in the instance of static output cost and unchanged quantities against falling oil prices.
Deflators are to be used separately for inputs and outputs, and this is a practice universally adopted by all economies.

Select the answer using the code given below.

Select an option to attempt

Explanation

Based on the passage, let us evaluate the given statements:

Statement 1 is correct: The passage explicitly states, "If oil prices fall, output prices do not and quantities remain the same, real value added should not change." This perfectly matches the scenario described in the first statement.
Statement 2 is incorrect: The passage mentions that "Most countries" use double deflation (where input and output prices are deflated separately). It does not say it is a practice "universally adopted by all economies." Furthermore, the passage explicitly gives the example of India, which uses the same deflator for inputs and outputs, proving that the practice is not universal.

Therefore, only Statement 1 is correct, making Option A the right answer.