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# What is the difference between real GDP and nominal GDP? Does GDP accurately reflect our nation's productivity?

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During 2004, the national average gas price rose from \$1.50 a gallon to \$2.25 a gallon. The government has stated that the high price of gas will remain as it is. Discuss how this cost influences your decision to buy a new car. Based on your budget, would you buy the large car that gets 7 miles per gallon or the car that gets 25 miles per gallon? Explain.

What is the difference between real GDP and nominal GDP? Does GDP accurately reflect our nation's productivity? Explain your answer.

https://brainmass.com/economics/inflation/140592

#### Solution Preview

During 2004, the national average gas price rose from \$1.50 a gallon to \$2.25 a gallon. The government has stated that the high price of gas will remain as it is. Discuss how this cost influences your decision to buy a new car. Based on your budget, would you buy the large car that gets 7 miles per gallon or the car that gets 25 miles per gallon? Explain.

Some basic concepts of theory of demand.

The law of demand states that as the price goes up, the quantity demanded goes down, other things constant. An alternative way of saying the same thing is that price and quantity demanded are inversely related, so the demand curve slopes downward to the right. The law of supply states quantity supplied rises as price rises, other things constant. Quantity supplied falls as price falls, other things constant.
Demand curves slope downward, supply slope upward. Movements along a demand curve are induced by change in the price of that good. Thus the key determinants of demand and revenues can be:

Number of potential buyers and their respective taste
Favorable change in the buyers' taste through advertisement, promotion, increasing the quality of services and improving the brand image can increase the revenue.
Substitutes
If the number of substitutes increases it will have negative impact on the revenues

Complements
Price increase in complements reduce the demand

During 2004, the national average gas price rose from \$1.50 a gallon to \$2.25 a gallon. The government has stated that the high price of gas will remain as it is. Discuss how this cost influences your decision to buy a new car. Based on your budget, would you buy the large car that gets 7 miles per gallon or the car that gets 25 miles per gallon? Explain.

This will have negative influence on my decision as the cost of running the car will go up by ...

#### Solution Summary

The difference between real GDP and nominal GDP is discussed in approximately 1000 words

\$2.19