I am taking an economics class and can not get the hang of figuring inflation/deflation. I am so confused. Any help or explanation would be greatly appreciated. My instructor just tells me to keep reading the book. Thanks
Consider a scenario where you are an entrepreneur planning to expand your production of kitchen gadgets. You need to pay back a loan of $5,000,000 over five years. The interest rate is 5% and your other operational costs are $10,000,000 per annum. The first year after the investment your sale is 95,000 boxes of kitchen gadgets and your revenue is $9,500,000. Assuming that your sales volume remains unchanged, prepare a report on the following:
The rate of annual inflation that will assure that you break even and will be able to pay off your loan on time
Assume that you now earn $142 for each box of kitchen gadgets. In addition assume that the economy has entered a period of deflation. What is the rate of deflation at which falling prices will make the venture unprofitable.
Your kitchen gadget firm also caters to the export market. Some of the markets you export to experience inflation while others do not. List at least two advantages of exporting to countries going through a period of inflation and to countries with a stable market.
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Inflation is when other factors increase the price of something.
A muffin may be worth 20c, but you need to increase the price to make a profit, pay the baker, and buy supplies. Hence the price might raise to $1.50.
Deflation is when factors decrease the price of something.
Like, if a factory purchased it’s own trucks, they wouldn’t have to rent trucks to make deliveries, hence only having to pay the drivers. and since the price of the goods were increased to compensate for the truck rental, they may be decreased.
Now, when considering the world economy, in Australia alot of people invested in American companies, the recent crisis caused the american dollar to lose value, and in compensation, the american economists lowered it’s dollars value.
Now, deflation also occurs with no profit, Australian tax money is used to subsidize the price of Drugs, a drug may be worth $45 but it will be available for $8, this generates no profit, but is a mere offset of tax money.