The quantity of employment is determined in the ________ market and that quantity, along with the ________, determines potential GDP
A) loanable funds; production function
B) goods and services; labor market
C) labor market; tax rate
D) labor market; production function
E) labor market; tax wedge

Question

Quizplus · Accepted Answer

The labor market determines the quantity of employment, and this employment quantity, along with the production function, determines potential GDP. Therefore, option D is the correct answer. Option A is incorrect because the loanable funds market determines the interest rate, not employment. Option B is incorrect because while the goods and services market are related to GDP, it does not determine employment. Option C is incorrect because the tax rate does not directly determine employment. Option E is incorrect because the tax wedge refers to the difference between the before-tax and after-tax return to an economic activity, it is not directly related to the quantity of employment.

The Quantity of Employment Is Determined in the ________ Market