Discuss the production function. How does the production function relate to the labor market and potential GDP?
What will be an ideal response?
The production function shows the maximum amounts of real GDP that can be produced as the quantity of labor changes, holding constant all other influences on production. As the quantity of labor increases, real GDP increases but at a decreasing rate, that is, the production function shows diminishing returns. The production function "stands between" the labor market and potential GDP. In particular, the quantity of employment is determined in the labor market. The production function then shows the amount of real GDP that is produced by this quantity of employment. When the quantity of employment determined in the labor market is the equilibrium quantity, then the amount of real GDP produced is potential GDP.
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a. payment for raw materials used in manufacturing goods b. interest payments on a loan used to finance the construction of a building c. shipping charges for the delivery of products d. wages paid to temporary workers
Which of the following would not be included as part of personal income?
a. Welfare benefits b. Food stamps distributed by the government c. Social security benefits d. Indirect business taxes e. Corporate dividend payments to stockholders