16.
Directions for the next 2 (two) items:
Read the following passage and answer the items that follow. Your answers should be based solely on the passage.
Passage:
How is deflation done? Most countries use a method called 'double deflation', where input and output prices are deflated separately. Suppose a manufacturer is importing oil for use in production. If oil prices fall, output prices do not fall, and quantities remain unchanged, real value added should not change. But if the same deflator is used for both inputs and outputs, as happens in India, it would appear as if that manufacturer's productivity had increased further.
Which of the following statements is/are correct?
1. With falling oil prices, with static output cost and unchanged quantities, real value change should not happen.
2. Deflators are to be used separately for inputs and outputs, and this is a practice universally adopted by all economies.
Select the answer using the code given below.