Q77·CSAT · Prelims 2026

自由ए — Deflation Accounting Assumptions

Reading Comp.Statement-AssumptionStatement-Assumption● Medium

Question

[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] Which of the following assumptions is/are valid?

1Deflation strategies can be used to make manufacturers appear to be doing better than they actually are.

2When input and output prices are both deflated against a single input price, it is referred to as 'double deflation'.

Options

1 only

Answer

2 only

Both 1 and 2

Neither 1 nor 2

Explanation

Let us check the validity of the assumptions based on the textual logic:

Assumption 1 is valid: The final sentence reveals that under single-deflator accounting rules, 'it would look as if the manufacturer had become more productive' even when real underlying value is static[cite: 5294, 5295]. This supports the idea that indexing choices can inflate performance appearances.

Assumption 2 is invalid: The text defines 'double deflation' as a method 'where input and output prices are deflated separately', which contradicts the idea of scaling both against a single index layer.

A valid assumption must correctly link the text's economic conditions with their reported impacts on data trends.

Answer: (a).

Question details

Year

2026

Paper

CSAT

Question

Q77

Section

Comprehension

Sub-topic

Statement-Assumption

Type

Statement-Assumption

Difficulty

Medium

Source hint

RC passage — macroeconomic data metrics

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