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Answer
The correct answer is (D) 64.0 billion
Here sacrifice ratio = 2. This means that fall in price by 1% will reduce annual real GDP by 2%.
Here rate of inflation falls by 8 - 4 = 4%. This means that there is fall in prices by 4%.
As sacrifice ratio = 2, This means that annual real GDP will fall by 2*4 = 8%.
Here potential GDP = 800 billion.
So fall in actual real output = 8% of 800 billion = (8/100)*800 billion = 64 billion.
Hence, the correct answer is (D) 64.0 billion.
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