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% per year over the next 5 years. Actual real GDP decreases by 2% in the first year, but then grows 4 % in the second year, 5.5% in the third year, 4.2% in the fourth year, and 3.5% in the fifth year. Inflation in years 1-5 equals 3.1%, 2.2%, 1.6%, 1.3%, and 1.1% 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.