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The Bank of Canada decides to use contractionary monetary policy to initiate a disinflation. Assume that potential real GDP is 1940, and that the resulting
The Bank of Canada decides to use contractionary monetary policy to initiate a disinflation. Assume that potential real GDP is 1940, and that the resulting recession lasts for 3 years, with an average real GDP of 1820 before the economy returns to potential GDP. If the disinflation reduces inflation from 8% to 2%, what was the sacrifice ratio in this case? (Answer to one decimal point.)
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