Japan Experienced Periods of Deflation-A Declining Price Level-During the 1990s

question 251

Essay

Japan experienced periods of deflation-a declining price level-during the 1990s.During a deflationary period,which would be higher: nominal GDP or real GDP? Why? Assume that the base year of choice is prior to the deflationary period.

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Definitions:

Capital Investment Analysis

The process of evaluating the advisability of investing in long-term assets, based on potential returns.

Present Value

A rephrased definition denoting the current value of a future amount of money discounted at a particular rate of return.

Internal Rate of Return

A financial metric used to evaluate the profitability of potential investments, calculated as the discount rate that makes the net present value of all cash flows from a particular project equal to zero.

Average Rate of Return

A financial ratio that demonstrates the profitability of an investment by comparing the average annual profit to the initial investment cost.