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It is said that imports from China has accounted for a third of the increase in Japanese imports during 2004-2005 (OECD 2005). Since businesses are selling cheaper goods than when selling domestic goods, the total revenue of the company decreases and therefore in the long-run, the wages will go down as well. Therefore, consumption of goods and services will decline as well. Then, it will result in a decrease in company’s revenue, bringing down the wages again. This process will continue until some action is taken by the government or the FED.
Actions taken to end deflation
Monetary Policy has been used to stop deflation from continuing...
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