Which of the following best defines the sacrifice ratio?
A) the sum of the inflation and unemployment rates
B) the inflation rate divided by the change in output
C) the number of percentage points annual output falls for each percentage point reduction in inflation
D) the number of percentage points unemployment rises for each percentage point reduction in inflation

Question

Quizplus · Accepted Answer

The sacrifice ratio is the number of percentage points of annual output that must be forgone in order to reduce inflation by one percentage point. It represents the tradeoff between reducing inflation and sacrificing output. Choice A is incorrect because the sacrifice ratio only considers the effect on output, not the inflation rate itself. Choice B is incorrect because it involves dividing the inflation rate, which is not directly related to the sacrifice ratio. Choice D is incorrect because it refers to the Phillips curve, which shows the tradeoff between inflation and unemployment, but does not specifically relate to the sacrifice ratio.

Which of the Following Best Defines the Sacrifice Ratio