An economy must sacrifice 12 percent of GDP to reduce inflation. Which of the following plans represents the "cold turkey" solution to inflation?
A) Reduce output by 1 percent for 12 years.
B) Reduce output by 2 percent for 6 years.
C) Reduce output by 4 percent for 3 years.
D) Reduce output by 12 percent for 1 year.

Question

Quizplus · Accepted Answer

The "cold turkey" solution to inflation means making drastic and immediate changes to reduce inflation. The option that represents this approach is reducing output by 12 percent for 1 year (option D). This option may cause significant short-term pain but will lead to a quicker reduction in inflation compared to the other options.

An Economy Must Sacrifice 12 Percent of GDP to Reduce