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Math Help - maths economics

  1. #1
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    maths economics

    hi, can someone please help me with this question, im really struggling with it.
    "in a certain location, house prices are decreasing at the rate of 5% per annum. How long will they take to halve? if the rate of inflation is 5%, how long will they take to half in real terms?
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  2. #2
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    Quote Originally Posted by jwish View Post
    hi, can someone please help me with this question, im really struggling with it.
    "in a certain location, house prices are decreasing at the rate of 5% per annum. How long will they take to halve? if the rate of inflation is 5%, how long will they take to half in real terms?
    100%- 5%= 95% so the value is multiplied by .95 every year. If the original value is V, the value after n years is 0.95^xP so you need to solve 0.95^xP= 0.5P. The "P" cancel and taking logarithms of both sides, x log 0.95= log 0.5 so x= (log 0.95)/(log 0.5).

    If inflation is 5%, then the "real" devaluation is 10%. The value of a house is multiplied by 1.00- .10= .90 each year.
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