Below is a graph of home price since 1900 to 2010. Answer the questions below—th

Question

Below is a graph of home price since 1900 to 2010. Answer the questions below—they are based on this graph.

A) What is average real rate at which the house prices have gone up every year, between 1900 and 2010, based on this graph? Assume that the inflation-adjusted price index in 2010 is 117, and in 1990 is 100.

B) Would the nominal rate of growth for houses be higher or lower than the inflation-adjusted price?

Inflation-Adjusted U.S. Home Prices Since 1900 200 O 180 C 160 140 120 1001 80 60 1900 1910 1920 1930 1940 1950 1960 19701980 1990 2000 2010 Year Source: Observations (ObservationsAndNotes.blogspot.com)

Explanation / Answer

Question A) Price on 2010 117 Less:Price in 1900 100 Increase 17 No of year (2010-1900) 20 Average increase per year 0.85 Rate of increase (0.85/100) 0.85% Question B) Normal rate of growth is higher than the inflation adjust growth rate.

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