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Digital circuits generate current spikes as they switch - this causes voltage ripples on the supply lines, effecting all components around.
Decoupling means stopping this current spike drawing power from the power lines.
The decoupling capactior, placed near each chip across its power lines (Vcc to Gnd) supplies this transient current to the chip instead of the power lines, thus eliminating the ripples on the supply. The capacitor then recharges slowly from the supply line, ready for the next transient.
Usually, a ceramic capacitor of 10nF to 100nF placed immediately next to each chip, from Gnd to Vcc, is used. In addition, a larger capacitor, 10uF to 100uF, may be used at the power connection to the board, with a smaller ceramic one, 100nF, in parallel to absorb higher frequency transients.
as you know in DC the impedance of a Cap is inf.(infinitive)so if you put a Cap for power suply for its dc component its impedance is inf. where the high frequency component make the impedence of Cap to zero.so you eliminate the ripple of power suply and also its noise because noise have all frequency.
The decoupling capacitor provides a resivour of current that is instantly avilable at the swithing component removing small spikes and glitches from the power rail. Any small imperfections on the power rail can cause iregular operation of the circuit.
As you know the capacitor current = C.dv/dt
from this equation you will notice the capacitor will sense any voltage change with time (like AC voltage or any ripples in our case) and block in DC voltage (0 Hz).
So when there are any spikes (fast change in voltage ), the capacitor will pass it to gnd.
Decoupling is when a DC signal accompanies AC components or frequencies and they need to be eliminated. You need to put a cap from Vcc to Gnd on the pin. For AC coupling you need a cap in series to the AC signal to help is get thru such as a PCM analog audio signal is coupled thru a cap.
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