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Zorluk: OrtaInflation Types, Price Indices (CPI, WPI), and Price Control Mechanisms

Consider the following statements regarding price indices and liquidity management tools in India:

1. Food and beverages carry a significantly higher weightage in the Consumer Price Index (Combined) basket than food items carry in the Wholesale Price Index basket.
2. The Wholesale Price Index tracks price movements of both physical commodities and commercial services, whereas the Consumer Price Index covers only physical commodities.
3. Raising the Cash Reserve Ratio (CRR) by the Reserve Bank of India increases commercial banks' lending capacity, thereby expanding market liquidity.

Which of the statements given above is/are correct?

  1. 1 onlyCevap
  2. B
    2 only
  3. C
    1 and 3 only
  4. D
    1, 2 and 3

Cevap

Statement 1 alone is correct. Food items carry a higher weight in CPI than in WPI; WPI does not cover services; and raising CRR reduces market liquidity.
The statement specifying '1 only' is correct. Food items carry a weight of approximately 45.86% in CPI (Combined) compared to around 24.38% in WPI, making Statement 1 true. Statement 2 is incorrect because services are absent in WPI and present in CPI. Statement 3 is incorrect because raising the CRR forces commercial banks to park more reserves with the RBI, thereby reducing bank lending capability and draining money supply from the market.

Adım Adım Çözüm

1
Analyze Statement 1 regarding food weights in CPI vs WPI.
In India's CPI (Combined), the weight of the 'Food and Beverages' group is 45.86%. In WPI (base year 2011-12), primary food articles carry a weight of 15.26% and manufactured food products carry 9.12% (totaling 24.38%). Thus, food weightage is much higher in CPI.
Consumer baskets reflect household expenditure where food forms a major portion, whereas wholesale baskets reflect producer/merchant commodity trade.
2
Analyze Statement 2 regarding sector coverage in WPI vs CPI.
WPI measures wholesale transactions of physical goods only (Primary Articles, Fuel & Power, Manufactured Products). CPI covers retail goods as well as services (such as housing, medical care, education, and transport).
WPI does not include the service sector in India.
3
Analyze Statement 3 regarding the monetary policy impact of CRR on liquidity.
Cash Reserve Ratio (CRR) is the percentage of Net Demand and Time Liabilities (NDTL) that commercial banks must maintain as cash reserves with the RBI. Increasing CRR locks up more money with the central bank, lowering the loanable funds of banks and reducing overall market liquidity.
Higher CRR is a contractionary monetary policy measure used to curb demand-pull inflation by draining excess liquidity.

Anahtar Kavram

Differences in CPI vs WPI Basket Composition & CRR Monetary Transmission Mechanism
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Konular

Inflation Types, Price Indices (CPI, WPI), and Price Control Mechanisms