Sacrifice Ratio

Sacrifice Ratio can be defined as an economic ratio that is used to measure the costs that are associated with the process of slowing the economic growth in order to stabilize or coup up or change the inflation trends. In order to calculate this ratio we require a number of different mathematical figures such as the cost of the lost production and the percentage change in the inflation. The lost cost of production is divided by the percentage change in the inflation. The quotient that is derived gives us loss of output with respect of 1 percent change in the inflation rate due to change in the economic growth. The formula of sacrifice ratio can be shown as under:-

Sacrifice Ratio = Dollar Cost of Production Loss/ Percentage Change in Inflation

The major objective of the sacrifice ratio is to control the ever increasing inflation within the market. We know that inflation if unchecked and overflowing can adversely affect the monetary functions and monetary market of the country. If the ever increasing inflation is becoming a problem the central bank or state bank of the country will adopt practices that will result in a positive growth in the economy and this positive change in the economy will help in controlling the ever increasing inflation in form of percentage change. As we know that no change is permanent so this change in economy to control inflation is also short term and the sacrifice ratio tends to measure the costs associated with short term reduction in output costs of economy.

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