Which of the following statements is/are <strong>correct</strong>?<br>1. A price index captures the change in the average price of a constant basket of commodities.<br>2. If the price index takes values 100, 110 and 121 in three consecutive years respectively, then the inflation rates in the 2nd and 3rd years are 10% and 21% respectively.<br>Select the correct answer using the code given below.
- A. 1 only ✓
- B. 2 only
- C. Both 1 and 2
- D. Neither 1 nor 2
Correct Answer: A. 1 only
Explanation
Statement 1 is correct (e.g., CPI uses a constant basket). Statement 2 is incorrect because the inflation rate in the 3rd year is calculated relative to the 2nd year's base (110), so it is \frac{121-110}{110} \times 100 = 10\%, not 21\%.
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