Question
An office building is valued at $2 million in 2020, which is 30% greater than its value in 2010. Using prices in 2010 as the
An office building is valued at $2 million in 2020, which is 30% greater than its value in 2010. Using prices in 2010 as the base year, know that prices in the economy have grown on average by 1.35 times between 2010 and 2020.
(i)If the value of the office building had risen at the same rate as average prices between 2010 and 2020, what would it be worth in 2020? Briefly explain your answer.
(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 office building in 2010 or 2020? Briefly justify your answer.
(iii)Calculate the rate of inflation between 2010 and 2020.
Assume wage negotiations are done and agreed based on the CPI. Briefly explain what happens to employers and employees when the CPI is downwardly biased (i.e. the CPI is estimated to be lower than what it should be).
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