nnのCPA試験の旅 in Hawaii CPA試験の旅 in Hawaii

Hello again!

by nn_77
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タグ:inflation ( 1 ) タグの人気記事

---- Question from Ms.ww / 这是ww小姐给我的问题------------------------------------------------------


I came to ask you a question,
I am really not clear with meaning of deflation.
For example, 1USD=150YEN(2002/3/3)
**if the question is ,what percentage is the inflation to compare with previous year?
36% or 27%?

Thank you for sharing the problem here with us.

I’m not sure whether your question is about inflation rate of USD or deflation rate of JPY, because you wrote “I am really not clear with meaning of deflation” and “what percentage is the inflation to…”

Since it concerns USCPA exam, I suppose it is about inflation rate of USD.
If so, in my opinion, the former is correct: (1) 40/110=36%

But I’d rather take it this way.

In 2002, you had to pay one dollar in US to buy a commodity which was sold for 150 yen in Japan.
In 2003, the product was still 150 yen in Japan. But the inflation occurred in US and the value of one dollar declined. Therefore, now you have to pay 1.36 dollars to buy the product in US. (150 / 110 = 136%) This means prices of goods have increased by 36%, when compared to the prices of previous years.

If my understanding is correct, below is the flow of INFLATION.

Market is saturated with money. ( Everybody has much money.)
Demand volume exceeds Supply volume.
Prices go high.

Soaring prices of products lead to depreciation of the currency.
e.g. What do you think when a bunch of bananas is sold for 1 million yen?

Bananas are too expensive? Or Japanese yen is too cheap?

Above is a phenomenon observed in (hyper-) inflation, which actually happened in Argentina in 1989.

In the question that you presented above,
1USD=150YEN (2002/3/3)
1USD=110YEN (2003/3/3)

This means the value of USD depreciated compared to the previous year, and so I thought it’s about inflation.

This is a link to Japanese Wikipedia, where they explain inflation.

Well, that’s what I think about the question you cast, though I’m not much confident.
Please feel free to contact me if my explanation above doesn’t make sense to you.
Any doubt, refutation, or correction is highly appreciated, as always.

Best regards,

by nn_77 | 2007-07-16 23:17 | >BEC | Comments(0)