Comprehension : Comprehension

Q 11 / 466

UPSC CSE Prelims 2026

Directions: 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.

EXPLANATION

The correct option is D - Neither 1 nor 2.

[as per provisional answerkey]

Why this is correct

The passage discusses the technicalities of "double deflation" and how India's current method differs from it. However, both statements provided in the question contain inaccuracies based on the specific wording of the passage:

  • Statement 1 is incorrect: The passage states that if oil prices fall while output prices and quantities remain the same, "real value added" should not change. Statement 1 omits the word "added" and simply says "Real value should not change." In economics and the context of this passage, "Real Value" and "Real Value Added" (GVA) are distinct concepts. The passage specifically refers to the value added by the manufacturer, not the absolute real value of the product.
  • Statement 2 is incorrect: The passage states that "Most countries" use double deflation. Statement 2 claims this is a practice "universally adopted by all economies." The jump from "most" to "all/universal" is a logical fallacy (overgeneralization). Furthermore, the passage explicitly mentions that India does not follow this practice, thereby disproving the claim of universality.

Why the other options are incorrect

  • Option (a) - 1 only: This is incorrect because Statement 1 fails to use the precise terminology ("value added") mentioned in the passage, which is crucial for the economic logic being described.
  • Option (b) - 2 only: This is incorrect because the passage explicitly contradicts the "universal" nature of the practice by stating that India uses a single deflator and only "most" countries use double deflation.
  • Option (c) - Both 1 and 2: This is incorrect because, as analyzed above, both statements contain factual or logical deviations from the text provided.

Key Concept

This question tests the ability to identify "extreme language" (universal vs. most) and the necessity of maintaining precise terminology (real value vs. real value added) in reading comprehension.