Given a sacrifice ratio of five, how much output must be reduced to lower inflation from 7% to 3%?

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An output decrease of 20 percentAn output decrease of 5 percentAn output decrease of 15 percentAn output decrease of 35 percent

Explanation

The sacrifice ratio indicates the percentage of output lost for each percentage point reduction in inflation. With a sacrifice ratio of 5 and a 4% drop in inflation (from 7% to 3%), the total output reduction equals 5 multiplied by 4%, resulting in a 20% decrease in output.