Economics Aggregate Demand And Supply Questions
The concept of the sacrifice ratio refers to the trade-off between reducing inflation and increasing unemployment in the short run. It measures the amount of output and employment that needs to be sacrificed in order to achieve a desired reduction in inflation. The sacrifice ratio is calculated by dividing the percentage change in output or employment by the percentage change in inflation. It helps policymakers understand the costs associated with implementing contractionary monetary or fiscal policies to reduce inflation.