Passage

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 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.

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.

(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2 ✓ UPSC's answer

Why the answer is (d)

• Statement 1 is not correct: the passage says real value ADDED should not change when oil (input) prices fall while OUTPUT PRICES and quantities stay the same. The statement speaks of "real value" and a "static output cost", which is not what the passage describes.

• Statement 2 is not correct: the passage says MOST countries use double deflation and India does not, so it is not universal.

• Hence neither: (d).

Why the other options are wrong

(a) 1 only: Statement 1 changes the passage: it is real value added, with output prices (not cost) unchanged.
(b) 2 only: Statement 2 is wrong: India uses a single deflator, so the practice is not universal.
(c) Both 1 and 2: Neither statement matches the passage.

Asked in the CSAT Paper II of the UPSC Civil Services Preliminary Examination 2026, held on 24 May 2026. Question and answer key: Union Public Service Commission. Explanation: UPSC Answer Check.