Assume that the sacrifice ratio for an economy is 4. If the central bank wishes to...
- Assume that the sacrifice ratio for an economy is 4. If the central bank wishes to reduce inflation from 10 percent to 5 percent, this will cost the economy ______ percent of one year's GDP.
- 4
- 5
- 20
- 40
Homework Answers
Answer:
Sacrifice Ratio = (Percentage of Loss GDP/Percentage of Disinflation)
Here fed wishes to reduce inflation( i.e. deflation) 10% to 5%
Also It is given that sacrifice ratio = 4
Hence % of loss GDP = 4*5 = 20%
Hence, This will cost the economy 20% of its GDP.
Hence correct option is C] 20%
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