Question

Thirty years ago daniel bought a plot of land for $50,000 when the cpi was 50. now the cpi is 180 and he sold the land for $180,000. what issue might inflation cause for daniel?

Answer 1

Answer:

The consumer price index tells us the price of the product that has been increased due to inflation. And can be computed using following formula:

Price in year X2 = Amount paid in Year X1  *  CPI in year X2 / CPI in year X1

Price Now = $50000 * 150 Now/ 50 Before = $180,000

This means the person has not benefited from the inflation increases. In real terms there is no profit on such investment. The increase in price of land is equal to the increase in inflation or we can say that the increase in the price has compensated only for the inflation increase.