If the sacrifice ratio is five, a reduction in inflation from 7 percent to 3 percent would require ?
Correct answer: A. a reduction in output of 20 percent
- A. a reduction in output of 20 percent
- B. a reduction in output of 5percent
- C. a reduction in output of 15 percent
- D. a reduction in output of 35 percent
Explanation
The inflation reduction is 7 minus 3, or 4 percentage points. With a sacrifice ratio of 5, the required output loss is 5 × 4 = 20 percent.
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