Static Quiz November 8, 2025 (Economics) | Legacy IAS Academy

Q1. Consider the following statements about CPI and WPI:

1. CPI includes imported goods in its basket, while WPI does not.
2. WPI assigns a higher weight to foods than CPI-Combined.
3. Both CPI and WPI are compiled by the same agency in India.

How many of the above statements are correct?

(a) Only one (b) Only two (c) All three (d) None

Answer: (a) Only one

Explanation:

1. Correct – CPI tracks the retail prices of consumer goods, including imported items that are part of household consumption (e.g. imported electronics, edible oils, gold). WPI is based on domestic wholesale transactions and excludes imported goods unless they are handled at the wholesale stage after customs clearance in India.
2. Incorrect – In WPI (2011–12 series), primary items (including food) have a weight of ~22.6%, of which food items make up ~14.3%. In CPI combined (base 2012), foods and drinks have a weight of 45.86%. That’s why CPI gives much higher weight of food than WPI.
3. Incorrect – CPI (all variants: Combined, Rural, Urban, IW, AL, RL) is compiled and released by the National Bureau of Statistics (NSO) under the Ministry of Statistics and Program Implementation (MoSPI). WPI is compiled by the Office of the Economic AdviserMinistry of Trade and Industry. Ministry of Trade and Industry.

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Question 2. Consider the following statements about the GDP deflator:

1. It includes the prices of all domestically produced final goods and services.
2. It uses current year quantities as weights (Paasche index).
3. It is published monthly by the NSO, along with GDP data.

How many of the above statements are correct?

(a) Only one (b) Only two (c) All three (d) None

Answer: (b) Only two

Explanation:

1. Correct – GDP deflator = (nominal GDP / real GDP) × 100. It reflects price changes in all final goods and services produced within the domestic territoryincluding consumption, investment, government expenditure and exports – but excluding import.
2. Correct – Real GDP is calculated using basic annual priceswhile nominal GDP uses prices of the current year. So the deflator uses implicitly quantity weights for the current yearmaking it a Paasche type index.
3. Incorrect – GDP estimates (and thus the GDP deflator) are released quarterly by the NSO (e.g. Q1: April-June released in August). There is no monthly GDP deflator. The monthly inflation data comes from the CPI/WPI and not the GDP Deflator.

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Q3. Consider the following statements about inflation types:

1. Creeping inflation is moderate (2-4%) and considered healthy.
2. Current inflation is 5–9% annually.
3. Galloping inflation is in double digits but below 50% per month.

How many of the above statements are correct?

(a) Only one (b) Only two (c) All three (d) None

Answer: (c) All three

Explanation:

1. Correct – Creeping (or mild) inflation on the order of 2–4% is considered optimal for growth because it stimulates spending, investment and wage adjustments without significantly eroding purchasing power. RBI targets 4%that falls in this zone.
2. Correct – Inflation while walking (or trotting) is defined as 5–9% per yearindicating a moderate acceleration that requires policy attention but has not yet run amok.
3. Correct – Galloping inflation refers to double- and triple-digit annual rates (10-999% per year), equal to high but less than 50% per month. Hyperinflation begins when monthly inflation exceeds monthly inflation 50% (Cagan, 1956).

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Q4. Consider the following statements about the WPI basket:

1. WPI includes 697 items, of which 117 are primary, 564 are manufactured.
2. The Fuel & Power group has the highest weight in WPI.
3. WPI weights are revised every 5 years.

How many of the above statements are correct?

(a) Only one (b) Only two (c) All three (d) None

Answer: (a) Only one

Explanation:

1. Correct – According to the WPI Series 2011–12 (current as of 2025), the basket has 697 resources:
   1. Primary articles: 117
   1. Fuel and power: 16
   1. Manufactured Products: 564
2. Incorrect – Manufactured products have the highest weight: 64.23%. Fuel and power: 13.15%Primary articles: 22.62%.
3. Incorrect – WPI base year and weights are not revised every 5 years. The current series is 2011–12 (introduced in 2017). The previous one was from 2004-2005. Revision is irregular and depends on data availability (e.g. NAS, ASI). The next revision (base 2023-2024) is being considered.

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Question 5. Consider the following statements about demand-pull inflation:

1. It occurs when AD > AS at full employment.
2. It is fueled by low interest rates and high government spending.
3. It reduces the real income of fixed-income groups.

How many of the above statements are correct?

(a) Only one (b) Only two (c) All three (d) None

Answer: (c) All three

Explanation:

1. Correct – Demand-pull inflation occurs when total demand is greater than total supply at or near full employment, creating excessive demand pressure. This is the classic Keynesian explanation.
2. Correct – Expansionary monetary policy (low repo rate) and fiscal policy (high G-sec loans, subsidies) increase money supply and disposable income, shifting AD to the right → demand-pull inflation.
3. Correct – Experience with fixed incomes (retirees, wage class with fixed scales). erosion of real income because prices are rising faster than nominal income.

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