A country is likely to have a higher sacrifice ratio if
A)Contracts are shorter,and people believe the central bank will reduce inflation.
B)Contracts are longer,and people believe the central bank will not reduce inflation
C)Contracts are longer,and people believe the central bank will reduce inflation.
D)Contracts are shorter,and people believe the central bank will not reduce inflation.

Question

Quizplus · Accepted Answer

A higher sacrifice ratio means that a larger output loss is necessary to achieve a certain reduction in inflation. Contracts that are longer make it more difficult for the central bank to reduce inflation quickly, therefore increasing the sacrifice ratio. Additionally, if people believe that the central bank will not reduce inflation, they may be less willing to adjust their expectations and behavior, making it harder for the central bank to achieve its goal and increasing the sacrifice ratio.

A Country Is Likely to Have a Higher Sacrifice Ratio