How is the sacrifice ratio measured? How big is the sacrifice ratio in the United States? In other countries? What problems are there in measuring the sacrifice ratio?

What will be an ideal response?


The sacrifice ratio is measured as the percentage by which output falls below potential for every percentage point decline in inflation. In the United States, the sacrifice ratio is about 2, while other countries have sacrifice ratios ranging from 3/4 to 3. The sacrifice ratio is difficult to measure because it's hard to calculate what output would have been in the absence of disinflation and because supply shocks may distort the calculation.

Economics

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Economics