If the sacrifice ratio is 2,reducing the inflation rate from 4 percent to 2 percent would
A)cost 1 percent of annual output.
B)cost 4 percent of annual output.
C)imply that unemployment would rise by 1%.
D)imply that unemployment would rise by 4%.

Question

Quizplus · Accepted Answer

The sacrifice ratio of 2 means that for every 1% reduction in inflation, 2% of annual output is lost. Reducing inflation by 2% (from 4% to 2%) would therefore cost 4% of annual output.

If the Sacrifice Ratio Is 2,reducing the Inflation Rate from 4