Sacrifice Ratio

Sacrifice Ratio

An economic ratio that measures the costs associated with slowing down economic output to change inflationary trends. The ratio is calculated by taking the cost of loss production and dividing it by the percentage change in inflation. The value obtained gives the loss of output per one percent change in inflation.

Notes:

If inflation is becoming a problem central banks will try and cool economic growth in a bid to reduce inflationary pressures. However this reduction in output costs the economy in the short term and the sacrifice ratio tries to measure that cost.

See also: Economy, Gross Domestic Product - GDP, Inflation, Macroeconomics