Final answer:
The correct type of storage for high-performance scratch space in a Compute Engine virtual machine is local SSD, due to its high IOPS and low latency.
Step-by-step explanation:
For an application requiring high-performance scratch space in a Compute Engine virtual machine, the suitable type of storage is local SSD. Local SSDs provide high IOPS (Input/Output Operations Per Second) and lower latency compared to persistent disks, whether standard or SSD persistent. Scratch space typically needs to be very fast and is temporary, which is exactly what local SSDs offer. They are physically attached to the server that hosts the virtual machine, which gives them their speed advantage. However, keep in mind, if the virtual machine is terminated, data in the local SSD is lost.