Based on this output version of the EAPC, we can define what is called the ‘Sacrifice Ratio’ – the cumulative percentage loss of a year’s GDP that needs to be reduced to reduce inflation by one percentage point. This ratio is calculated as follows: in any given year, take the percentage loss in output, measured by the ADSGAP. Add the cumulative losses and divide by the sustained drop in inflation, i.e., the difference between the starting and ending values of inflation corresponding to L.R.E.
