If the sacrifice ratio is 5 per cent, then reducing the inflation rate from 12 per cent to 4 per cent would require sacrificing _____ per cent of annual output.

Question

Quizplus · Accepted Answer

The sacrifice ratio is the percentage of annual output lost per percentage point reduction in inflation. To reduce inflation from 12% to 4%, a reduction of 8 percentage points is needed. With a sacrifice ratio of 5%, the total output sacrificed would be 8 points * 5% = 40%.

If the Sacrifice Ratio Is 5 Per Cent, Then Reducing