In which of the following situations does inflation reduction have the lowest cost?
A)when the efforts are credible, so that the sacrifice ratio is low
B)when the efforts are credible, so that the sacrifice ratio is high
C)when the efforts are unexpected, so that the sacrifice ratio is high
D)when the efforts are unexpected, so that the sacrifice ratio is low

Question

Quizplus · Accepted Answer

When efforts to reduce inflation are credible, economic agents adjust their expectations accordingly, leading to a lower sacrifice ratio, which means the cost in terms of lost output is minimized.

In Which of the Following Situations Does Inflation Reduction Have