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A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?
[2011]
- a)It is the impact of drastic deficiency in supply due to failure of crops
- b)It is the impact of the surge in demand due to rapid economic growth
- c)It is the impact of the price levels of previous year on the calculation of inflation rate
- d)None of the statements (a), (b) and (c) given above is correct in this context
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
A rapid increase in the rate of inflation is sometimes attributed to t...
The Base effect refers to the tendency of a small change from a low initial amount to the current amount which is translated into a large percentage and appears as large. It is usually used in context of inflation. It indicates the change in the inflation rate in the current period with respect to the base period.
Most Upvoted Answer
A rapid increase in the rate of inflation is sometimes attributed to t...
Base Effect in Inflation:
The correct answer is option (c), which states that the base effect is the impact of the price levels of the previous year on the calculation of inflation rate.
Explanation:
In the context of inflation, the base effect refers to the distortion in the inflation rate caused by the comparison to the previous year's data. When there is a significant increase in the price level of a specific item in the base year, it can lead to a high inflation rate in the current year, even if the actual price increase is not substantial.
Example:
For instance, let's consider a hypothetical scenario where the price of a commodity doubled in the base year. In the following year, if the price of the same commodity increases by 10%, the inflation rate calculated without considering the base effect would be lower. However, when the base year's high price level is taken into account, the inflation rate appears to be higher due to the comparison.
Conclusion:
It is essential to understand the base effect when analyzing inflation data to avoid misinterpretations. By recognizing and accounting for the base effect, economists and policymakers can make more accurate assessments of the true inflation rate and implement appropriate measures to control it.
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A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?[2011]a)It is the impact of drastic deficiency in supply due to failure of cropsb)It is the impact of the surge in demand due to rapid economic growthc)It is the impact of the price levels of previous year on the calculation of inflation rated)None of the statements (a), (b) and (c) given above is correct in this contextCorrect answer is option 'C'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?[2011]a)It is the impact of drastic deficiency in supply due to failure of cropsb)It is the impact of the surge in demand due to rapid economic growthc)It is the impact of the price levels of previous year on the calculation of inflation rated)None of the statements (a), (b) and (c) given above is correct in this contextCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?[2011]a)It is the impact of drastic deficiency in supply due to failure of cropsb)It is the impact of the surge in demand due to rapid economic growthc)It is the impact of the price levels of previous year on the calculation of inflation rated)None of the statements (a), (b) and (c) given above is correct in this contextCorrect answer is option 'C'. Can you explain this answer?.
A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?[2011]a)It is the impact of drastic deficiency in supply due to failure of cropsb)It is the impact of the surge in demand due to rapid economic growthc)It is the impact of the price levels of previous year on the calculation of inflation rated)None of the statements (a), (b) and (c) given above is correct in this contextCorrect answer is option 'C'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?[2011]a)It is the impact of drastic deficiency in supply due to failure of cropsb)It is the impact of the surge in demand due to rapid economic growthc)It is the impact of the price levels of previous year on the calculation of inflation rated)None of the statements (a), (b) and (c) given above is correct in this contextCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for A rapid increase in the rate of inflation is sometimes attributed to the “base effect”. What is “base effect”?[2011]a)It is the impact of drastic deficiency in supply due to failure of cropsb)It is the impact of the surge in demand due to rapid economic growthc)It is the impact of the price levels of previous year on the calculation of inflation rated)None of the statements (a), (b) and (c) given above is correct in this contextCorrect answer is option 'C'. Can you explain this answer?.
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