The worked question on this page is original educational practice. It is not represented as a question from an official previous-year examination paper.
01 / UNDERSTANDING
Review the question
Write an original three-period index question that separates the direction of prices from the direction of inflation. Ask learners to identify the incorrect phrase prices fell in a positive-rate case. An original checkpoint is: Did the price level fall when the illustrative inflation rate declined from 10% to 5%? Supported answer: No; the index rose from 110 to 115.5. Explain the decisive fact, then alter one condition and solve again. This is an original practice method, not a claim that the question appeared in an official past paper.
02 / UNDERSTANDING
The concept in context
An aggregate price index describes a basket average; individual items and household experiences can move differently. A useful study check is to write price-index levels beside inflation rates, then classify inflation, disinflation and deflation accurately. Explain why the method fits the stated facts before applying it to a changed situation.
03 / UNDERSTANDING
A worked learning case
An invented price index rises from 100 to 110, then to 115.5. Inflation in the first interval is 10%; in the second it is 5%. The index still rises by 5.5 points in the second interval. Calling the second observation a general fall in prices confuses a slower rate of increase with a negative change.
ORIGINAL EDUCATIONAL PRACTICE
Try it before you check.
Did the price level fall when the illustrative inflation rate declined from 10% to 5%?
Show the answer and reasoning
No; the index rose from 110 to 115.5.
The second rate is calculated as 115.5 minus 110, divided by 110, which equals 5%. Because the rate remains positive, the measured price level increases. The decline from 10% to 5% is disinflation. Falling prices would require a negative change in the index over the specified comparison period.
Two traps to watch for.
- Calling lower positive inflation a fall in the price level.
- Calculating successive changes with the original denominator.
YOUR TOPIC-SPECIFIC LEARNING MAP
Learn from the attempt
Write price-index levels beside inflation rates.
Use the immediately relevant comparison denominator.
Classify inflation, disinflation and deflation accurately.
Explain the idea, apply it to a new situation, then check what changed in your reasoning.
BANKERS TUTORIAL · SOURCE NOTES
Keep the source alongside your notes.
Official links provide subject context and authoritative reference material. This guide’s explanation, scenario and question are original Bankers Tutorial learning content.
- ncert.nic.in https://ncert.nic.in/textbook.php?leec1=ps-6
- rbi.org.in https://rbi.org.in/scripts/PublicationsView.aspx?Id=18086
For RBI preparation, check the current official notice before relying on changing dates, rules or examination requirements.
