In the long run, the level of national income in an economy is determined by its:
A) factors of production and production function.
B) real and nominal interest rate.
C) government budget surplus or deficit.
D) rate of economic and accounting profit.

Question

Quizplus · Accepted Answer

The level of national income in an economy is determined by its factors of production (land, labor, capital, and entrepreneurship) and production function (how these factors are combined to produce goods and services). Factors of production and their productivity determine the economy's capacity to produce goods and services, and the production function determines how efficiently these factors are combined to produce output. Therefore, A is the best choice. B, C, and D are incorrect as they do not determine the level of national income in the long run.

In the Long Run, the Level of National Income in an Economy