The sacrifice ratio is the a. sum of the inflation and unemployment rates. b. number of...

The sacrifice ratio is the

a. sum of the inflation and unemployment rates.
b. number of percentage points annual output falls for each percentage point reduction in inflation.
c. inflation rate divided by the unemployment rate.
d. number of percentage points unemployment rises for each percentage point reduction in inflation.

Solutions

Expert Solution

For reducing the inflation rate, the government decrease the demand that leads increase in the unemployment rate above the natural rate.

The sacrifice ratio can be defined as an economic tools that shows the percentage of a year’s real GDP that must be foregone to reduce inflation by 1 percentage points.

Hence the sacrifice ratio is the number of percentage points annual output falls for each percentage point reduction in inflation.

Hence option b is the correct answer.

Rahul Sunny answered 1 year ago

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