Q. Consider the following statements:
1.India uses the Wholesale Price Index (WPI) as GDP deflator.
2.The GDP deflator is based on consumer spending, while the Consumer Price Index (CPI) includes business investments.
Which of the statement(s) given above is/are correct?

[A] Only 1

[B] Only 2

[C] Both 1 and 2

[D] Neither 1 nor 2

Answer: D
Notes:

Explanations –

Statements 1 and 2 are incorrect. India does not use only the WPI as the GDP deflator. Instead, the GDP deflator is a weighted average of WPI and CPI. While WPI has a larger influence on the GDP deflator, it is not the sole component. The GDP deflator reflects price changes for all goods and services produced domestically, including business investments, government spending, and exports, but excludes imports. The CPI, on the other hand, focuses only on consumer spending and measures the price changes of a fixed basket of goods and services purchased by households.

Source: The Hindu

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