A program to reduce inflation is likely to have lower 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 represents the cost in terms of output loss that must be incurred to achieve a given reduction in inflation. A low sacrifice ratio means that the reduction in inflation can be achieved at a low cost, whereas a high sacrifice ratio means that the cost is high. If the reduction in inflation is expected, it is easier to coordinate expectations and the sacrifice ratio tends to be lower. Therefore, a program to reduce inflation is likely to have lower costs if the sacrifice ratio is low and the reduction is expected, which corresponds to answer choice D.

A Program to Reduce Inflation Is Likely to Have Lower