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UPSC Prelims 2026 CSAT, question 16

Topic: Reading comprehension

Directions · Q16 to Q17

Directions for the next 2 (two) items :
Read the following passage and answer the items that follow. Your answers should be based solely on the passage.

Passage · Q16 to Q17

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.

Q16

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.

  1. (a) 1 only
  2. (b) 2 only
  3. (c) Both 1 and 2
  4. (d) Neither 1 nor 2Correct answer

Solution.

Answer: (d) Neither 1 nor 2

  1. Statement 1 is incorrect: the passage says real value added should not change when output prices stay put; the statement swaps in real value and output cost.
  2. Statement 2 is incorrect: the passage says most countries use double deflation, and India does not, so it is not universal.

Trap: Statement 1 reads like the passage's oil example, but changes both the quantity measured and the price held fixed.