Government policymakers decided to reduce the rate of inflation from 3% to 1.6%. As a result, the unemployment rate increased from 4.8% to 6.2%. The sacrifice ratio is: a. 2
b. 1
c. 0.5
d. none of the above

Government policymakers decided to reduce the rate of inflation from 3% to 1.6%. As a result, the unemployment rate increased from 4.8% to 6.2%. The sacrifice ratio is:

d. none of the above

Explanation:

a) Data and Calculations:

Old inflation rate = 3%

New inflation rate = 1.6%

Old unemployment rate = 4.8%

New unemployment rate = 6.2%

Ratio of old inflation rate to old unemployment rate = 3 : 4.8 = 0.625

Ratio of new inflation rate to new unemployment rate = 1.6% : 6.2% = 0.258

Sacrifice ratio = Difference between the two ratios = 0.367 (0.625 - 0.258)

b) The sacrifice ratio is the difference between the old ratio and the new ratio of inflation rate to unemployment rate.

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