The purpose of this problem is to study the sacrifice ratio. Suppose that initially actual and natural real GDP both equal 11,000 and that the rate of inflation is 3.5 percent. Natural real GDP grows by 3 percent per year over the next five years. Actual real GDP decreases by 2 percent in the first year, but then grows by 4 percent in the second year, 5.5 percent in the third year, 4.2 percent in the fourth year, and 3.5 percent in the fifth year. Inflation in years 1–5 equals 3.1 percent, 2.2 percent, 1.6 percent, 1.3 percent, and 1.1 percent, respectively.
(a) Calculate natural real GDP for years 1–5.
(b) Calculate actual real GDP for years 1–5.
(c) Calculate the output ratio for years 1–5.
(d) Calculate the cumulative loss of output for years 1–5.
(e) Calculate the sacrifice ratio.