In which of the following situations is a program to reduce inflation likely to have the highest costs?
A)if the sacrifice ratio high and the reduction is unexpected
B)if the sacrifice ratio high and the reduction is expected
C)if the sacrifice ratio low and the reduction is unexpected
D)if the sacrifice ratio low and the reduction is expected

Question

Quizplus · Accepted Answer

The sacrifice ratio measures the short-term cost of reducing inflation, in terms of output loss. A high sacrifice ratio means that reducing inflation comes with a high cost in terms of output loss. Therefore, in situation A, where the sacrifice ratio is high and the reduction is unexpected, the costs of reducing inflation are likely to be the highest. This is because the reduction in inflation may come as a surprise, leading to a greater level of economic disruption and output loss.

In Which of the Following Situations Is a Program to Reduce