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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The economy is studied as a whole through national income, gross domestic product, inflation, unemployment, economic growth and business cycles. Coverage includes aggregate demand and supply, consumption and investment, money and banking, fiscal and monetary policy, exchange rates and balance of payments, which distinguishes macroeconomics from the study of individual markets.
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