Consider the following statements regarding the measurement of the rate of inflation 1 The rate of i...........

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Consider the following statements regarding the measurement of the rate of inflation:

1.The rate of inflation is measured on the basis of the Wholesale Price Index (WPI) and Consumer Price Index (CPI).

2. A price index is a measure of the average level of prices.

3. Price index shows the exact price rise or fall of a single good.

Which of the following statement(s) is/are correct?

1 only

1 & 2 only

2 & 3 only

1 & 3 only

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Explanation:

The rate of inflation is measured on the basis of price indices which are of two kinds—Wholesale Price Index (WPI) and Consumer Price Index (CPI). A price index is a measure of the average level of prices, which means that it does not show the exact price rise or fall of a single good. The CPI tracks the change in retail prices of goods and services which households purchase for their daily consumption. To measure inflation, we estimate how much CPI has increased in terms of percentage change over the same period the previous year. If prices have fallen, it is known as deflation (negative inflation).