Suppose the Bank of Canada reduces inflation 2 percentage points, and this makes output fall 12 percentage points and unemployment rises 4 percentage points. What is the sacrifice ratio?

Question

Quizplus · Accepted Answer

The sacrifice ratio is calculated as the loss in output divided by the reduction in inflation. Here, the output falls by 12 percentage points and inflation is reduced by 2 percentage points, so the sacrifice ratio is 12/2 = 6.

Suppose the Bank of Canada Reduces Inflation 2 Percentage Points