A program to reduce inflation is likely to have higher costs if the sacrifice ratio is
A)high and the reduction is unexpected.
B)high and the reduction is expected.
C)low and the reduction is unexpected.
D)low and the reduction is expected.

Question

Quizplus · Accepted Answer

The sacrifice ratio measures the output loss that an economy must endure in order to reduce inflation by a certain amount. The higher the sacrifice ratio, the greater the cost of reducing inflation. If the reduction in inflation is unexpected, the costs are likely to be higher, as markets will have less time to adjust and the adjustment process will be more abrupt. Therefore, if the sacrifice ratio is high, as in option A, and the reduction is unexpected, the costs of the program are likely to be higher.

A Program to Reduce Inflation Is Likely to Have Higher