Sacrifice ratio

Updated: Aug 20, 2021

In Keynesian economics, the ratio between the amount of unemployment needed to reduce inflation and the reduction achieved. According to demand inflation models, an increase in demand when activity is high has more effect in increasing inflation than in equal fall in demand has in decreasing inflation when activity is low. This implies that the sacrifice ratio for any economy will be lower if disinflationary pressure is applied steadily than if the economy varies between spells of expansionary policy and occasional bursts of severe cuts in effective demand. The sacrifice ratio is likely to be lower if the authorities’ commitment to reducing inflation is regarded as credible.

Reference: Oxford Press Dictonary of Economics, 5th edt.

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James Knight
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James is the Editor of Education for Invezz, where he covers topics from across the financial world, from the stock market, to cryptocurrency, to macroeconomic markets.... read more.