Final answer:
The correct answer is option d. The most effective strategy to accomplish reducing inflation with a lower sacrifice ratio is (d) a cold-turkey approach, which involves sudden and significant policy changes to quickly reduce inflation rates.
Step-by-step explanation:
When considering the most effective strategy for reducing inflation, the concept of a sacrifice ratio is critical. This ratio measures the cost, usually in terms of output or employment, associated with lowering inflation by 1 percentage point. If a rapid disinflation has a lower sacrifice ratio than a slow disinflation, this suggests that the costs of reducing inflation quickly are lower than doing so gradually.
Contractionary monetary policy is a tool used by central banks to fight inflation. By decreasing the supply of money and credit in the economy, this policy raises the interest rate and discourages borrowing for investment and consumption, thereby shifting aggregate demand left. The result is a lower price level and, in the short run, lower real GDP. A tax increase on consumer income is another measure that can be employed to combat inflation as it reduces consumption and pushes the aggregate demand (AD) curve left.
Given this understanding, the best approach to reducing inflation quickly and with a lower sacrifice ratio would be (d) a cold-turkey approach. This option typically involves sudden and significant policy changes aimed at quickly reducing inflation rates, as opposed to gradual adjustments over time.