The correct option is (a) - 1 only.
[as per provisional answerkey]Why this is correct
Assumption 1 is valid because the passage explicitly states that if the same deflator is used for inputs and outputs (as is the case in India), it can make it "look as if the manufacturer had become more productive" even when real value added has not changed. This implies that the choice of deflation strategy can indeed create a misleadingly positive impression of a manufacturer's performance or productivity.
Why the other options are incorrect
- Assumption 2 - Single input price deflation is 'double deflation': This is factually contradicted by the passage. The passage defines 'double deflation' as a method where "input and output prices are deflated separately," not against a single price or deflator.
- Option (b) - 2 only: This is incorrect because Assumption 2 misrepresents the definition of double deflation provided in the text.
- Option (c) - Both 1 and 2: This is incorrect because while Assumption 1 is a valid inference/assumption based on the text, Assumption 2 is logically inconsistent with the passage's definition.
- Option (d) - Neither 1 nor 2: This is incorrect because Assumption 1 is a logically sound deduction from the final sentence of the passage regarding the appearance of increased productivity.
Key Concept
The distinction between 'double deflation' (separate deflators) and 'single deflation' (same deflator) and how the latter can distort productivity metrics.