1. 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.
2. If an economy wants to increase its current level of investment, it must:
A. sacrifice future consumption.
B. print more money.
C. offer more stocks and bonds to financial investors.
D. sacrifice current consumption.
3. Which of the following is an example of a supply shock?
A. A surge in consumer optimism prompts increased buying of goods and services.
B. A surprise tax rebate from the government gives people more money to spend.
C. A dramatic increase in energy prices increases production costs for firms in the economy.
D. Government increases spending on education.
4. In situations of sticky prices and negative demand shocks, we would expect firms to:
A. deplete inventories before increasing production.
B. reduce production before building up inventories.
C. build up inventories before reducing production.
D. lower prices before reducing production or building up inventories.
5. The overall behavior of the economy:
A. is remarkably stable over time.
B. differs over time as prices become increasingly flexible in the months and years following a shock.
C. differs over time as prices become increasingly sticky in the months and years following a shock.
D. is easily controlled and stabilized by government policy.