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) Web site 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?