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Calibrating an ammeter is tricky thing to do. The obvious way would be connecting it to another good ammeter and see if they get the same result. However, people have been telling you can use a potentiometer i.e. rheostat. How is this possible? Please explain the steps and how it needs to be done

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Potentiometer, as the name says, measures potential. The instrument that used to be called a Potentimeter was a rheostat and a Galvanometer movement, a voltage reference and a momentary contact switch. The meter movement didn't even need to be calibrated since the potential was read when the meter had nulled (zero current or no load condition).

To calibrate an ammeter, you need a 1 ohm reference shunt resistor (or accurately measured shunt of low resistance) in series with the meter and measure the voltage drop across the shunt with a Potentiometer and calculate the current.

Today, unless you have a metrology lab, you use a 4 or 5 digit digital ohmeter to measure the test shunt resistance and a similar digital voltmeter across the shunt while varying the current (supply voltage) and calculate the current.

There are lots of other ways. Like a constant current source and a chemical cell and weighing the plated metal on an electrode after some measured period of time. This and the Potentiometer and ballistic galvanometer were good enough to find the work functions of metals in the late 1800's (Now I'm guessing a little and will have to look at the setups used to make those measurements.)

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