California Real Estate Practice Exam

If the purchasing power of the dollar decreases, the price of property __________. If the purchasing power of the dollar increases, the price of property __________. In both cases, the value of the property __________.

1. decreases, decreases, increases

2. decreases, increases, increases

3. increases, decreases, could remain the same

4. increases, decreases, increases

The correct answer is: decreases, decreases, increases

When the purchasing power of the dollar decreases, this means that each dollar buys fewer goods and services, which typically leads to an increase in property prices. This rise occurs because property is often seen as a hedge against inflation; owners are likely to ask for more money when the general price levels in the economy rise. Conversely, if the purchasing power of the dollar increases, this indicates that each dollar can buy more. In such cases, the price of property generally decreases, as buyers have a stronger dollar and can purchase more for less. In both situations, the overall value of the property tends to increase. This is because real estate is considered a long-term asset that can provide a store of value which often appreciates over time, irrespective of short-term fluctuations in currency purchasing power. Therefore, the correct framework for understanding these economic phenomena is that if purchasing power decreases, property prices go up, while if purchasing power increases, property prices decrease; nonetheless, the intrinsic value of the property can still exhibit an upward trend.