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In the context of the types of Inflation, consider the following statements:
- Headline Inflation refers to the change in the value of all goods in the basket including food and fuel.
- 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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Most Upvoted Answer
In the context of the types of Inflation, consider the following state...
- Headline inflation is the total inflation in an economy. The headline inflation figure includes inflation in a basket of goods that includes commodities like food and energy. Hence statement 1 is correct.
- Core inflation excludes food and fuel items from headline inflation. Since the prices of fuel and food items tend to fluctuate and create ‘noise’ in inflation computation, core inflation is less volatile than headline inflation. Hence statement 2 is not correct.
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In the context of the types of Inflation, consider the following state...
Understanding Inflation Types
Inflation can be categorized into two main types: Headline Inflation and Core Inflation. Understanding the definitions and characteristics of these types helps clarify the statements given in the question.
Headline Inflation
- Headline Inflation measures the total inflation within an economy, including all goods and services.
- It encompasses volatile items such as food and fuel.
- This measure reflects the price changes consumers experience in their everyday life.
Core Inflation
- Core Inflation, on the other hand, excludes certain volatile items like food and energy prices.
- This measure is designed to provide a clearer picture of the underlying, persistent inflation trends in the economy.
- Core Inflation tends to be less volatile than Headline Inflation because it smooths out the fluctuations caused by the prices of essential commodities.
Evaluating the Statements
- Statement 1: "Headline Inflation refers to the change in the value of all goods in the basket including food and fuel."
- This statement is correct. Headline Inflation indeed includes all goods and services, capturing the overall price changes.
- Statement 2: "Core Inflation is more volatile than headline inflation."
- This statement is incorrect. Core Inflation is generally less volatile as it excludes the impact of food and fuel prices, which can fluctuate significantly.
Conclusion
Based on the analysis, the correct answer is option 'A' since only the first statement is accurate. Understanding these concepts is crucial for interpreting economic indicators and making informed decisions.
Inflation can be categorized into two main types: Headline Inflation and Core Inflation. Understanding the definitions and characteristics of these types helps clarify the statements given in the question.
Headline Inflation
- Headline Inflation measures the total inflation within an economy, including all goods and services.
- It encompasses volatile items such as food and fuel.
- This measure reflects the price changes consumers experience in their everyday life.
Core Inflation
- Core Inflation, on the other hand, excludes certain volatile items like food and energy prices.
- This measure is designed to provide a clearer picture of the underlying, persistent inflation trends in the economy.
- Core Inflation tends to be less volatile than Headline Inflation because it smooths out the fluctuations caused by the prices of essential commodities.
Evaluating the Statements
- Statement 1: "Headline Inflation refers to the change in the value of all goods in the basket including food and fuel."
- This statement is correct. Headline Inflation indeed includes all goods and services, capturing the overall price changes.
- Statement 2: "Core Inflation is more volatile than headline inflation."
- This statement is incorrect. Core Inflation is generally less volatile as it excludes the impact of food and fuel prices, which can fluctuate significantly.
Conclusion
Based on the analysis, the correct answer is option 'A' since only the first statement is accurate. Understanding these concepts is crucial for interpreting economic indicators and making informed decisions.
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In the context of the types of Inflation, consider the following statements: Headline Inflation refers to the change in the value of all goods in the basket including food and fuel. 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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