Chapter 3: National Income

Question 1

Factors of production

Answer 1

Inputs used to produce goods and services

Question 2

Production Function

Answer 2

Y=F(K,L) - output is a function of capital and labor

K = Capital stock, L=labor force, Y=Real GDP

Question 3

Factor Prices

Answer 3

Amounts paid to each unit of the factors of production

Question 4

Competitive Firm

Answer 4

Small, little influence on market price

Question 5

Profit

Answer 5

Revenue - costs

Question 6

Marginal Product of labor

Answer 6

Output firm gets from extra unit of labor

Question 7

Marginal product of Capital

Answer 7

Output firm gets from extra unit of capital

Question 8

Diminishing marginal product

Answer 8

Amount of capital is fixed

marginal product is down, labor is up

Question 9

Real Wage

Answer 9

Payment to labor measured in units of output rather than in dollars

Question 10

Real rental price of capital

Answer 10

Rental price measured in goods over dollars

Question 11

Economic Profit

Answer 11

remaining income after factors of production are paid

Question 12

Accounting profit

Answer 12

Economic Profit + (MPK * K)

Question 13

Disposable Income

Answer 13

Income after taxes

Question 14

Interest Rate

Answer 14

Measures cost of funds used to finance investment

Question 15

Nominal interest rate

Answer 15

rate of interest investors pay to borrow money