Given below are two statements:
Statement I: In the Consumer Price Index, the weights given to the goods in the basket are kept constant.
Statement II: In the GDP deflator too, the weights of goods stay the same whatever the level of production of each good.
In the light of the above statements, choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Statement I is true but Statement II is false.
The CPI prices one fixed basket in both years. The GDP deflator values whatever is actually produced, so its weights move with production.
Statement I: In the Consumer Price Index, the weights given to the goods in the basket are kept constant. — True. The cost of the same basket is compared in the base year and the current year.
Statement II: In the GDP deflator too, the weights of goods stay the same whatever the level of production of each good. — False. In the GDP deflator the weights differ according to the production level of each good. This is one reason the CPI may differ from the GDP deflator.
NCERT (2026-27): “2.4 NOMINAL AND REAL GDP … There is another way to measure change of prices in an economy which is known as the Consumer Price Index (CPI). This is the index of prices of a given basket of commodities which are bought by the representative consumer. CPI is generally expressed in percentage terms. We have two years under consideration – one is the base year, the other is the current year. We calculate the cost of purchase of a given basket of commodities in the base year. We also calculate the cost of purchase of the same basket in the current year. … Notice CPI (and analogously WPI) may differ from GDP deflator because |