Two sets of factors determine the levels of potential (and actual) output and of real wages in the flexible-price model of the macroeconomy:
A) the production function balance of exports and imports.
B) the production function and the balance of savings and investment.
C) the production function and the balance of supply and demand in the labor market.
D) the production function and the balance of supply and demand in the stock market.

Question

Quizplus · Accepted Answer

The levels of potential (and actual) output and of real wages in the flexible-price model of the macroeconomy are determined by the production function and the balance of supply and demand in the labor market. The production function describes the relationship between inputs (like labor and capital) and output, while the labor market balance affects wage levels, which in turn influence output and employment.

Two Sets of Factors Determine the Levels of Potential (And