Final answer:
Adjusting nominal GDP for price changes results in real GDP, which provides a more accurate assessment of economic growth by using constant prices from a base year.
Step-by-step explanation:
Adjusting nominal Gross Domestic Product (GDP) for price changes from a base year yields real GDP. The process involves taking the quantities of goods and services produced in each year and multiplying them by their prices in a selected base year, like 2005 in the provided example.
By doing this, we obtain a measure of GDP using prices that remain constant over time, known as "Constant Dollars" or "2005 Dollars" in this case. Real GDP is a critical tool for economists as it provides a clearer picture of economic growth by removing the distortions caused by inflation.
When adjusting nominal GDP for price changes from a base year, we arrive at real GDP. Real GDP is a measure of GDP that uses prices from a specific base year to account for changes in price levels over time. By converting nominal GDP to real GDP, we can accurately measure the actual level of output in an economy, adjusting for any changes in prices.