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Home› UPSC CSE› Prelims GS Paper I› 2011 questions› Question 44

UPSC CSE Prelims

Subject: Economy Chapter: Inflation

2011 PYQ

Question 44

A rapid increase in the rate of inflation is sometimes attributed to the "base effect". What is "base effect"?

Choose one answer AIt is the impact of drastic deficiency in supply due to failure of crops BIt is the impact of the surge in demand due to rapid economic growth CIt is the impact of the price levels of previous year on the calculation of inflation rate DNone of the statements (a), (b) and (c) given above is correct in this context

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Correct answer: C

Correct Option: C Explanation: Inflation is usually computed as a percentage change over a previous-period price index; an unusually low or high base alters the new reported inflation rate. Option-wise Analysis: A: Incorrect - Supply shocks may raise inflation but are not the statistical base effect. B: Incorrect - Demand surges may raise prices but do not define the base effect. C: Correct - the previous year’s price level affects the computed year-on-year rate. D: Incorrect - Option C defines the phenomenon, so “none” is wrong.

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