Consider an Economy That Is in the Process of a Disinflation

question 29

Multiple Choice

Consider an economy that is in the process of a disinflation. Suppose that over a 2- year period, the rate of inflation is reduced from 6 percent to 1 percent. Over this same time, the cumulative loss in real GDP is $30 billion. Potential GDP is $600 billion. What is the sacrifice ratio?

• A)1
• B)2
• C)3
• D)4
• E)5

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Definitions:

Chi-squared Goodness-of-fit Test

A statistical test to determine if observed data matches the expected distribution of data across different categories.

Chi-squared Distribution

A statistical distribution describing the distribution of the sum of squared independent, standard normal variables, often used in hypothesis testing.

Non-negative

A term used to describe numbers that are either positive or zero, indicating values that are not less than zero.

Test Statistic

A value calculated from sample data, used in hypothesis testing to determine whether to reject the null hypothesis for the entire population.