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Suggested_answers_to_QUIZ1 - 3 If the prices of...

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Quiz 1 Macroeconomics Name ____________________________ 1. Assume that apples cost $0.50 in 2002 and $1 in 2007, whereas oranges cost $1 in 2002 and $0.50 in 2007. If 10 apples and 5 oranges were produced in 2002, and 5 apples and 10 oranges were produced in 2007, the CPI for 2007, using 2002 as the base year, is: a. 0.75. b. 0.80. c. 1. d. 1.25. 2. The substitution bias in the consumer price index refers to a. the substitution of new goods for old goods in the purchases of consumers. b. the fact that consumers substitute toward goods that have become relatively less expensive. c. the substitution of new prices for old prices in the basket of goods from one year to the next. d. the substitution of quality for quantity in consumer purchases over time.
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Unformatted text preview: 3. If the prices of Canadian-made snowmobiles imported into the United States increase, a. both the GDP deflator and the consumer price index will increase. b. neither the GDP deflator nor the consumer price index will increase. c. the GDP deflator will increase but the consumer price index will not increase. d. the consumer price index will increase, but the GDP deflator will not increase. 4 & 5. In 1964, Lyndon Johnson made $100,000 as President of the United States. President Bush currently makes $400,000 as President. What is Johnson salary in 2007 dollars? What is Bush’s salary in 1964 dollars? Show your work. CPI 1964 20 1990 100 2007 120 Johnson: (120/20)*100,000 = $600,000 Bush: (20/120)*400,000 = $66,667...
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