Suppose that reducing inflation 3 percentage points would cost a country 12 percent of annual output. What is this country's sacrifice ratio?
A) 3
B) 4
C) 9
D) 12

Question

Quizplus · Accepted Answer

The sacrifice ratio measures the amount of output a country must sacrifice to reduce inflation by 1 percentage point. It is calculated as:

Sacrifice ratio = (percentage decrease in output)/(percentage point decrease in inflation)

In this case, we are told that reducing inflation by 3 percentage points would cost the country 12 percent of annual output. So we can calculate the sacrifice ratio as follows:

Sacrifice ratio = 12%/3 = 4

Therefore, the answer is B.

Suppose That Reducing Inflation 3 Percentage Points Would Cost a Country