Question

If the sacrifice ratio is 3, reducing the inflation rate from 10 percent to 5 percent would require sacrificing what percent of annual output?

a. 2 percent of annual output
b. 5 percent of annual output
c. 6 percent of annual output
d. 15 percent of annual output

Answer 1

To reduce the inflation rate from 10% to 5%, a sacrifice of 15% of annual output is required.

Step-by-step explanation:

To determine the sacrifice required to reduce the inflation rate from 10% to 5%, we need to use the sacrifice ratio.

The sacrifice ratio measures the percentage reduction in output that is required to decrease inflation by 1%. In this case, the sacrifice ratio is 3.

This means that for every 1% reduction in inflation, there is a 3% reduction in output.

To reduce the inflation rate from 10% to 5%, we need to decrease inflation by 5 percentage points.

Therefore, the sacrifice required would be 5 x 3 = 15% of annual output. So, the correct answer is d. 15 percent of annual output.