Typical estimates of the sacrifice ratio suggest that a one-percentage-point reduction in the inflation rate requires
A)a sacrifice of 5 percent of annual output.
B)a sacrifice of 5 percent of government spending.
C)an increase in the unemployment rate of 5 percentage points.
D)a 5 percent increase in the government budget deficit.

Question

Quizplus · Accepted Answer

The sacrifice ratio measures the cost of reducing inflation in terms of lost output. A typical estimate suggests that reducing inflation by one percentage point requires a 5 percent loss in annual output.

Typical Estimates of the Sacrifice Ratio Suggest That a One-Percentage-Point