1) Given that CPI(1975)=53.8, and CPI(2015)=213.017, calculate the inflation rate between 1975 and 2015.

2)   Compare your answers to (1) and (2) are your numbers the same?

If not, what do you think is the reason for the discrepancy between them?

3)   In your opinion, do you think it was easier to buy the house in 1975 or in 2015? Explain your answer.

1. 295.9% / 296%
2. No.
3. It was a lot cheaper to buy the house in 1975 but back then that price was really high to begin with. I think the 2015 house is easier to buy because nowadays more people make that amount of money.

Step-by-step explanation

1. 213.017-53.8/53.8= 2.959 x 100 = 296%
2. Relative rate of change in housing prices from 1975 to 2015 is 686% while the inflation rate between 1975 and 2015 is 296%. Relative-price changes, like inflation, can cause price pressure in an economy. We experience them every day much like we experience inflation, and they cause changes in standard price indexes. But there the similarity ends. Relative-price changes are not a monetary phenomenon. They arise in market economies as individual prices adjust to the ebb and flow of the supply and demand for various goods. Relative-price movements convey important information about the scarcity of particular goods and services. A rising relative price indicates that demand is outstripping supply (or that supply is falling behind demand), while a falling relative price denotes just the opposite. A rising relative price induces consumers to conserve on the good in question and to look for substitutes. A rising relative price also, by increasing profit opportunities, entices producers to bring more of the good in question to market.
3. It was a lot cheaper to buy the house in 1975 but back then that price was really high to begin with. I think the 2015 house is easier to buy because nowadays more people make that amount of money.