Question

Harry's Pepperoni Pizza Parlor produced 10,000 large pepperoni pizzas last year that sold for $10 each. This year Harry's again produced 10,000 large pepperoni pizzas (identical to last year's pizzas) but sold them for $12 each. Based on this information we can conclude that Harry's production of large pepperoni pizzas:__________

A. increased both nominal and real GDP from last year.
B. increased nominal GDP from last year, but real GDP was unaffected.
C. increased real GDP from last year, but nominal GDP was unaffected.
D. did not change either nominal or real GDP from last year.

Answer 1

Option (B) is correct.

Step-by-step explanation:

Given that,

Number of Pepperoni Pizzas produced last year and this year = 10,000 each

Selling price of each Pepperoni Pizza in the last year = $10

Selling price of each Pepperoni Pizza in the this year = $12

Nominal GDP in the last year:

= Number of Pepperoni Pizzas produced × Selling price of each

= 10,000 × $10

= $100,000

Nominal GDP in this year:

= Number of Pepperoni Pizzas produced × Selling price of each

= 10,000 × $12

= $120,000

Therefore, the nominal GDP increases by $20,000 but the real GDP remains the same.

Note: If there is a rise in the price level of all the goods and services but same quantity would be produced then as a result there is an increase in the nominal GDP and there is no effect on the real GDP.