Explain how the labor market and the production function determine potential GDP
What will be an ideal response?
The labor market determines the equilibrium quantity of labor. In other words, the amount of employment is determined by supply and demand in the labor market. The production function shows the amount of output, real GDP, that is produced for all different amounts of employment. Intuitively, the production function "converts" the amount of employment from the labor market into real GDP. If the labor market is in equilibrium, so that the level of employment is equal to full employment, then the amount of real GDP produced, determined from the production function is potential GDP.
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For a given production possibilities frontier, which points are attainable?
A. Points inside the frontier B. Points outside the frontier C. Points on or outside the frontier D. Points on the frontier only E. Points on or inside the frontier
In general, the marginal cost curve
A) has a positive slope. B) has a negative slope. C) is horizontal. D) is vertical. E) is U-shaped.
Assume that the government increases spending and finances the expenditures by borrowing in the domestic capital markets. If the nation has highly mobile international capital markets and a flexible exchange rate system, what happens to the quantity of real loanable funds per time period and real GDP in the context of the Three-Sector-Model?
a. The quantity of real loanable funds per time period rises, and real GDP rises. b. The quantity of real loanable funds per time period rises, and real GDP remains the same. c. The quantity of real loanable funds per time period and real GDP remain the same. d. The quantity of real loanable funds per time period rises, and real GDP falls. e. The quantity of real loanable funds per time period falls, and real GDP falls.
Equity should never be used to judge economic policy.
Answer the following statement true (T) or false (F)