If the sacrifice ratio is 2, reducing the inflation rate from 10 percent to 6 percent would require sacrificing

Question

Quizplus · Accepted Answer

The sacrifice ratio is the amount of output that a country must sacrifice (either through lower output or higher unemployment) in order to decrease the inflation rate by 1 percentage point. In this case, the sacrifice ratio is 2, meaning that for every 1 percentage point decrease in inflation, output must be reduced by 2 percent.

Therefore, to reduce inflation from 10 percent to 6 percent, the inflation rate must be decreased by 4 percentage points, which would require a sacrifice of 8 percent of annual output (4 times 2). Thus, the correct answer is C.

If the Sacrifice Ratio Is 2, Reducing the Inflation Rate