If a central bank reduces inflation 2 percentage points and this makes output fall 3 percentage points and unemployment rise 5 percentage points for one year,the sacrifice ratio is
A)5/2.
B)3/2.
C)2/3.
D)2/5.

Question

Quizplus · Accepted Answer

The sacrifice ratio measures the reduction in output and increase in unemployment that a central bank must accept to achieve a one percentage point reduction in inflation. This is calculated as the ratio of the percentagepoint decline in output to the percentage-point reduction in inflation. In this case, the central bank reduced inflation by 2 percentage points, but output fell by 3 percentage points and unemployment rose by 5 percentage points. Therefore, the sacrifice ratio is:

Sacrifice ratio = (percentage-point decline in output)/(percentage-point reduction in inflation)
= 3/2
Therefore, the answer is B.

If a Central Bank Reduces Inflation 2 Percentage Points and This