The United States experienced a large increase in the number of births in the 19

Question

The United States experienced a large increase in the number of births in the 1950s. People in this baby-boom generation reached adulthood and started forming their own households in the 1970s.

a. Use the model of residential investment to predict the impact of this event on housing prices and residential investment.

b. Go to the Federal Reserve Economic Data (FRED) website to find data. For the years 1970 and 1980, compute the real price of housing, measured as the residential investment deflator divided by the GDP deflator. What do you find? Is this finding consistent with the model?

Explanation / Answer

a. in 1970s many of the people interested to have personal homes, with this many of them were started to invest in real estate and purchasing homes. many of they are residential investors where they use the home for their self living, not for lending commercial purpose. so, the demand for new homes has been increase during the period, with increase in demand, the prices also has been increases.

b. the housing prices were increased drastically when compares to the past, and it was starting to increase in 1970s.

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