Sacrifice ratio measures the costs associated with slowing down economic output to change inflationary trends. Sacrifice ratio is the number of percentage points of annual output lost in the process of reducing inflation by 1 percentage point.
The ratio is calculated by taking the cost of lost production and dividing it by the percentage change in inflation, and its quotient gives the loss of output per 1% change in inflation:
Sacrifice ratio = Dollar Cost of Production Loss/Percentage Change in Inflation
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