If the Fed reduces inflation 1 percentage point and this makes output fall 5 percentage points and unemployment rises 2 percentage points for one year, the sacrifice ratio is
A)1/5.
B)2.
C)5/2.
D)5.

Question

Quizplus · Accepted Answer

The sacrifice ratio is calculated as the loss in output divided by the reduction in inflation. Here, the output falls by 5 percentage points for a 1 percentage point reduction in inflation, so the sacrifice ratio is 5.

If the Fed Reduces Inflation 1 Percentage Point and This