economics hard Fill in the Blank

The phenomenon where the current year's inflation rate appears artificially high or low simply due to the unusually high or low base prices of the previous year is known as the ___ effect.

  1. open market borrowings (or debt / bonds)
  2. multiplier
  3. OPHI
  4. base

Answer: base

The base effect is a statistical artifact that occurs when comparing year-on-year inflation data. If prices spiked abnormally in the previous year, the current year's inflation will mathematically look lower even if absolute prices are still rising steadily.

Topic Macroeconomics - Inflation
Exam Relevance UPSC Prelims, SSC CGL, Banking
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