Daily Static Quiz Prelims Practice 2027
Option (c) is correct — stagflation is the simultaneous occurrence of stagnation (low/negative growth and high unemployment) and rising prices, famously experienced during the 1970s oil shocks. Options (a) and (b) deliberately swap definitions — option (a) describes cost-push inflation and option (b) describes demand-pull inflation (excess aggregate demand over supply). Option (d) is wrong — a falling rate of inflation while prices still rise is disinflation; deflation is an actual fall in the general price level (negative inflation).
- Wholesale Price Index (WPI) — Office of the Economic Adviser, Ministry of Commerce and Industry
- Consumer Price Index (CPI) — National Statistical Office (NSO), Ministry of Statistics and Programme Implementation
- Consumer Price Index for Industrial Workers (CPI-IW) — Reserve Bank of India
Pairs 1 and 2 are correctly matched — the WPI is compiled by the Office of the Economic Adviser under the Ministry of Commerce and Industry, and the CPI (Combined/Rural/Urban) is released by the NSO under MoSPI. Pair 3 is the deliberate trap — the CPI-IW is released by the Labour Bureau (Ministry of Labour and Employment), not the RBI; the RBI uses CPI (Combined) for inflation targeting but does not compile any of these indices.
Reason (R): The Monetary Policy Committee (MPC) is mandated to maintain Consumer Price Index (CPI) inflation at 4% with a tolerance band of ±2%.
Both A and R are correct and R directly explains A. A is correct — following the adoption of flexible inflation targeting formalised through the amended RBI Act, 2016, the RBI targets retail (CPI) inflation at a central target of 4%. R is correct — the Government, in consultation with the RBI, fixed the target at 4% CPI with an upper limit of 6% and lower limit of 2% (4% ±2%), and the six-member MPC sets the policy repo rate to achieve this; R provides the exact statutory basis for the 4% figure in A.
- The Consumer Price Index (CPI) measures price changes at the retail level, whereas the Wholesale Price Index (WPI) measures them at the wholesale level.
- The WPI does not include services in its basket.
- The GDP deflator covers a wider range of goods and services than both the CPI and the WPI.
- Headline inflation excludes food and fuel prices, while core inflation includes them.
Statements 1, 2, and 3 are correct — the CPI captures retail-level price changes while the WPI captures wholesale-level; the WPI basket comprises only goods (primary articles, fuel & power, manufactured products) and excludes services, a key conceptual difference from CPI; and the GDP deflator is the broadest measure, reflecting prices across the entire domestically produced GDP. Statement 4 is the deliberate trap with reversed definitions — headline inflation includes food and fuel, while core inflation excludes these volatile components.
- A rise in CPI inflation always indicates that the prices of all goods and services in the economy have increased.
- The Producer Price Index (PPI), launched in India in June 2026, measures the average change in prices received by producers for their output.
Statement 1 is incorrect — a rise in CPI reflects an increase in the weighted average price level of the basket, not a universal rise in every item's price; some prices may even fall while the index climbs since it is an aggregate; the absolute words "always" and "all" are the giveaway. Statement 2 is correct — India launched the PPI on 15 June 2026 alongside a revised WPI (base year 2022–23), comprising an Output PPI, Input PPI, and Services PPI; it measures the average change in selling prices received by domestic producers and is set to gradually replace the WPI in line with international IMF/SNA practice.
