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 required to reduce inflation. Longer contracts imply that prices are more rigid and therefore, adjusting to inflation changes takes more time. If people believe the central bank will not reduce inflation, they will likely demand higher wages to compensate for inflation, leading to higher costs for firms and a higher sacrifice ratio.

A Country Is Likely to Have a Higher Sacrifice Ratio