Final answer:
To determine the economic growth of an economy using GDP from two consecutive years, real GDP must be calculated by making adjustments for price-level changes (A). This provides a more accurate picture of actual production levels without the distortion caused by inflation or deflation, reflecting the economy's genuine expansion or contraction. Option A is the correct answer.
Step-by-step explanation:
When using the Gross Domestic Product (GDP) from two consecutive years to determine the economic growth rate of the economy, adjustments should be made for price-level changes, which is referred to as inflation or deflation. This is important because nominal GDP needs to be adjusted to arrive at real GDP, providing a more accurate measurement of the actual level of output within a nation. Real GDP reflects the economy's production without the distortion of price changes.
GDP growth rate is a crucial measure of economic performance and understanding how much production is changing year over year. When considering GDP growth, it is essential to distinguish between nominal GDP, which includes changes in prices, and real GDP, which excludes these changes, thus reflecting the economy's true expansion or contraction.
The volatility of GDP growth is known as the business cycle, and this includes periods of economic expansion and contraction, also known as booms and recessions. Over time, understanding and measuring real GDP, and therefore the economic growth rate accurately, allows for more informed decisions regarding the allocation of resources, government policy, and the long-term economic health of a nation.
Mentioning the correct option in the final answer, when using the GDP from two consecutive years to determine the economic growth rate of the economy, adjustments should be made for A. Price-level changes.