Suppose the Current Inflation Rate Is 4% and the Bank

question 97

Multiple Choice

Suppose the current inflation rate is 4% and the Bank of Canada wants to reduce it to 2%,knowing that the sacrifice ratio is 2.Apparently,the Bank of Canada is prepared to accept a decline of real GDP of ________ as the cost of disinflation.

• A)1% of potential output
• B)0.5% of potential output
• C)2% of potential output
• D)4% of potential output
• E)8% of potential output

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