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Indexation is a method whose use can be associated with which one of t

June 1, 2025 by rawan239

Indexation is a method whose use can be associated with which one of the following ?

Controlling inflation

Nominal GDP estimation

Measurement of savings rate

Fixing of wage compensation

This question was previously asked in

UPSC CDS-2 – 2019

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Indexation is a technique used to adjust payments or values to offset the effects of inflation. It is commonly applied to wages and salaries (often through Cost of Living Adjustments – COLA), pensions, social security benefits, and bond yields, among others, to maintain their real purchasing power. Thus, it is directly associated with the fixing or adjustment of wage compensation (and other forms of payment).

Indexation links a monetary payment or value to a price index, such as the Consumer Price Index (CPI), so that it rises automatically as the index rises.

While indexation helps individuals cope with inflation by adjusting their income or payments, it is not a tool for controlling inflation (Option A). Nominal GDP estimation (Option B) is based on current prices, not indexation, although indexation is used to convert nominal GDP to real GDP. Measurement of savings rate (Option C) is a calculation based on income and consumption, not directly related to indexation as a method.

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