Question
What are eddy currents? How are these produced? In what sense are eddy currents considered undesirable in a transformer and how are these reduced in such a device?

Answer

Eddy current: When magnetic flux linked with a metallic sheet changes, the induced current produced in it, are known as eddy currents.
Production: Production due to flux changes, a current is induced in the plate which seeks a path of least resistance and there by flows along irregularly shaped loops.
Undesirable–Due to heating effect.
Reduction–Laminated core.

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