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In the context of the types of Inflation, consider the following statements:
1. Headline Inflation refers to the change in the value of all goods in the basket including food and fuel.
2. Core Inflation is more volatile than headline inflation.
Which of the statements given above is/are correct?
- a)1 only
- b)2 only
- c)Both 1 and 2
- d)Neither 1 nor 2
Correct answer is option 'A'. Can you explain this answer?
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Verified Answer
In the context of the types of Inflation, consider the following state...
The correct answer is (a) 1 only.
Headline inflation refers to the percentage change in the price of a basket of goods and services that are consumed by households. This basket includes a wide range of goods and services, including food, fuel, housing, clothing, and medical care. Headline inflation is a broad measure of inflation that reflects the overall price level in an economy.
Core inflation, on the other hand, refers to the percentage change in the price of a basket of goods and services that excludes volatile items such as food and fuel. Core inflation is considered a more reliable measure of underlying inflation trends, as it excludes the short-term fluctuations in the prices of volatile items.
Therefore, statement 1 is correct because headline inflation does indeed refer to the change in the value of all goods in the basket, including food and fuel. However, statement 2 is incorrect because core inflation is generally less volatile than headline inflation, as it excludes the short-term fluctuations in the prices of volatile items.
Therefore, the correct answer is (a) 1 only.
Most Upvoted Answer
In the context of the types of Inflation, consider the following state...
Statement 1: Headline Inflation refers to the change in the value of all goods in the basket including food and fuel.
Statement 2: Core Inflation is more volatile than headline inflation.
Explanation:
1. Headline Inflation:
Headline inflation is a measure of the overall price level of goods and services in an economy. It includes all items in the Consumer Price Index (CPI) basket, including food and fuel. Headline inflation is commonly used to gauge the general trend in price levels.
The CPI basket is a representative basket of goods and services consumed by a typical household. It includes various categories such as food, housing, transportation, healthcare, education, etc. Headline inflation takes into account the price changes of all these goods and services.
Therefore, Statement 1 is correct.
2. Core Inflation:
Core inflation is a measure of inflation that excludes volatile items such as food and energy from the CPI basket. It focuses on the underlying trend in inflation by excluding the temporary price fluctuations of these volatile items. Core inflation provides a clearer picture of the long-term inflationary pressures in an economy.
By excluding food and fuel prices, core inflation aims to capture the underlying inflationary pressures in the economy, which are more stable and less influenced by short-term factors. This helps policymakers in formulating monetary policy decisions.
Therefore, Statement 2 is incorrect. Core inflation is typically less volatile than headline inflation because it excludes the more volatile components of the CPI basket.
Conclusion:
In conclusion, only Statement 1 is correct. Headline inflation includes the change in the value of all goods in the basket, including food and fuel. On the other hand, Statement 2 is incorrect as core inflation is generally less volatile than headline inflation.
Statement 2: Core Inflation is more volatile than headline inflation.
Explanation:
1. Headline Inflation:
Headline inflation is a measure of the overall price level of goods and services in an economy. It includes all items in the Consumer Price Index (CPI) basket, including food and fuel. Headline inflation is commonly used to gauge the general trend in price levels.
The CPI basket is a representative basket of goods and services consumed by a typical household. It includes various categories such as food, housing, transportation, healthcare, education, etc. Headline inflation takes into account the price changes of all these goods and services.
Therefore, Statement 1 is correct.
2. Core Inflation:
Core inflation is a measure of inflation that excludes volatile items such as food and energy from the CPI basket. It focuses on the underlying trend in inflation by excluding the temporary price fluctuations of these volatile items. Core inflation provides a clearer picture of the long-term inflationary pressures in an economy.
By excluding food and fuel prices, core inflation aims to capture the underlying inflationary pressures in the economy, which are more stable and less influenced by short-term factors. This helps policymakers in formulating monetary policy decisions.
Therefore, Statement 2 is incorrect. Core inflation is typically less volatile than headline inflation because it excludes the more volatile components of the CPI basket.
Conclusion:
In conclusion, only Statement 1 is correct. Headline inflation includes the change in the value of all goods in the basket, including food and fuel. On the other hand, Statement 2 is incorrect as core inflation is generally less volatile than headline inflation.
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In the context of the types of Inflation, consider the following statements:1. Headline Inflation refers to the change in the value of all goods in the basket including food and fuel.2. Core Inflation is more volatile than headline inflation.Which of the statements given above is/are correct?a)1 onlyb)2 onlyc)Both 1 and 2d)Neither 1 nor 2Correct answer is option 'A'. Can you explain this answer?
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