Prelims 2026 · CSAT / Reading Comprehension · Question 17
Which of the following assumptions is/are valid?<br/><br/>1. Deflation strategies can be used to make manufacturers appear to be doing better than they actually are.<br/>2. When input and output prices are both deflated against a single input price, it is referred to as 'double deflation'.<br/><br/>Select the answer using the code given below.<br/><br/>**Passage:**<br/>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.<br/>
Answer
1 only
Statement 1 is valid: the passage says using the same deflator for inputs and outputs can make a manufacturer appear more productive than it really is. Statement 2 is invalid because the passage defines double deflation as deflating inputs and outputs separately, not by a single input price.