Suppose that reducing inflation by 2 percentage points would cost a country 5 percent of its annual output.This country's sacrifice ratio is
A)0.4.
B)1.5.
C)2.5.
D)5.0.

Question

Quizplus · Accepted Answer

The sacrifice ratio is calculated as the percentage loss in output divided by the percentage reduction in inflation. Here, it is 5% output loss divided by 2% reduction in inflation, which equals 2.5.

Suppose That Reducing Inflation by 2 Percentage Points Would Cost