The Base Effect and Inflation
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Questions and Answers

What is the 'base effect' in the context of inflation rate calculation?

  • It is the effect of unexpected changes in the currency exchange rates
  • It is the impact of drastic deficiency in supply due to failure of crops
  • It is the impact of the price levels of previous year on the calculation of inflation rate (correct)
  • It is the impact of the surge in demand due to rapid economic growth

    • What can cause a rapid increase in the rate of inflation?

  • A drastic deficiency in supply due to failure of crops (correct)
  • A decrease in the interest rates
  • A sudden increase in the production of goods
  • A surge in demand due to rapid economic growth

    • Which of the following is not associated with the 'base effect'?

  • Impact of drastic deficiency in supply
  • Impact of price levels of previous year
  • Impact of surge in demand
  • Impact of changes in labor force (correct)

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