Daily Static Quiz Prelims Practice 2027
The WPI is published by the Office of the Economic Adviser, DPIIT (Ministry of Commerce and Industry); it covers goods only, not services, and manufactured products carry the largest weight. The NSO, MoSPI compiles CPI and the Consumer Food Price Index (CFPI) instead; the RBI uses headline CPI for its inflation target but does not compile WPI; and the Labour Bureau compiles CPI for industrial, agricultural and rural workers, not the WPI.
- Disinflation refers to a situation in which the general price level is falling.
- Reflation refers to a fall in the inflation rate from, say, 6% to 3%.
Statement 1 is incorrect — under disinflation, prices still rise but more slowly, so the inflation rate falls but stays positive, whereas a falling price level is deflation (negative inflation). Statement 2 is incorrect — a fall from 6% to 3% is disinflation, while reflation is policy action to revive demand and raise inflation from a very low level, usually to prevent persistent deflation.
Option (c) is incorrect — the RBI's formal target is headline CPI inflation of 4% ± 2 percentage points, and core inflation helps assess persistent price pressure but is not the official target. Options (a), (b), and (d) are all correct — skewflation is seen in, say, onion or tomato spikes while headline inflation is moderate; shrinkflation raises the effective price per unit without changing the sticker price; and stagflation, as in the 1970s oil shocks, shows that inflation and unemployment do not always move in opposite directions.
- Assertion (A): The GDP deflator is a broader measure of price change in domestic production than the Consumer Price Index.
- Reason (R): The GDP deflator includes the prices of imported goods and services.
Assertion A is correct — the GDP deflator covers all domestically produced final goods and services, including investment goods and government output, not just a fixed consumer basket. Reason R is incorrect, because the GDP deflator excludes imports and includes exports, since GDP measures domestic production; it is the CPI that does include imported goods consumed by households.
- Under Cagan's definition, hyperinflation is a price rise of over 50% per month.
- Imported inflation can result from a depreciation of the domestic currency.
- The Wholesale Price Index in India covers both goods and services.
Statement 1 is correct — Phillip Cagan defined hyperinflation as monthly inflation above 50%, though rate-based categories such as creeping and galloping inflation vary across textbooks. Statement 2 is correct — a weaker rupee makes imports costlier, raising domestic prices, and India's dependence on imported crude oil makes this a key risk. Statement 3 is incorrect — the WPI covers goods only and does not cover services.
