Suppose a central bank reduced inflation by 4 percentage points and that made output fall by 5 percentage points for four years,and it made the unemployment rate rise from 3 percent to 9 percent for three years.What is the sacrifice ratio?
A) 1
B) 3
C) 4
D) 5

Question

Quizplus · Accepted Answer

The sacrifice ratio is calculated as the total loss in output divided by the reduction in inflation. Here, the total loss in output is 5 percentage points for four years, which is 20 percentage points. The reduction in inflation is 4 percentage points. So, the sacrifice ratio is 20/4 = 5.

Suppose a Central Bank Reduced Inflation by 4 Percentage Points