Suppose that an economy is currently experiencing 10 percent unemployment and 15 percent inflation.If in the process of bringing inflation down by 2 percent real GDP falls by 4 percent,the sacrifice ratio is

Question

Quizplus · Accepted Answer

The sacrifice ratio is the percentage of output loss that an economy must suffer in order to lower inflation by 1 percent. In this scenario, the sacrifice ratio can be calculated as:

Sacrifice ratio = (percentage change in real GDP) / (percentage change in inflation)

Using the given values, we can calculate:

Sacrifice ratio = (-4%) / (-2%) = 2

Therefore, the sacrifice ratio is 2 percent. This means that for every 1 percent decrease in inflation, the economy must sacrifice 2 percent of its output.

Suppose That an Economy Is Currently Experiencing 10 Percent Unemployment