Question
In 1968, the average price of a new house in the United States was $25,300. Today, this price is about $350,000. Because todays average price
In 1968, the average price of a new house in the United States was $25,300. Today, this price is about $350,000. Because todays average price is about 13.8 times greater than the 1968 price, the price compari-sons that media commentators typically have undertaken would imply that the prices of new houses have increased by that multiple over the past five decades.
By and large, however, media fail to adjust their price comparisons for the effects of changes in the GDP deflator. After using the GDP defla-tor, which currently is based on values of goods and services expressed in 2009, the inflation-adjusted price of a new house in 1968 was $115,000. The current inflation-adjusted price of a new house is about $308,000, which is about 2.7 times greater than the inflation-adjusted price in 1968. Thus, the increase in the price of a new home in the United States during the past 50 years has been substantially smaller than implied by new-home price comparisons undertaken in media reports.
If claims that media commentators prefer to report the largest possible, attention-grabbing changes in numbers are correct, why might they pre-fer to report economic data that have not been adjusted for changes in the price level?
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