a.A house is worth $400,000 in 2020, but was worth $150,000 in 1990. Using prices in 1990 as the base year, know that prices in the economy have grown on average by 1.50 times between 1990 and 2020.

(i)If the price of the house had risen at the same rate as average prices, what would the house be worth in 2020? Briefly explain your answer. (2 marks)

(ii)Without doing any calculations, but simply based on information in the question and your response in (i), would you be better off having bought this house in 1990 or 2020? Briefly justify your answer.(2 marks)

(iii)Calculate the rate of inflation between 1990 and 2020.(2 marks)

Assume wage negotiations are done and agreed based on the CPI. Briefly explain what happens to employers and employees when the CPI is upwardly biased (i.e. the CPI is estimated to be higher than what it should be).