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Unformatted text preview: 105A HW3 solutions Questions for Review: 1. (1 for version 6 and 7) Factors of production and the production technology determine the amount of output an economy can produce. Factors of production are the inputs used to produce goods and services: the most important factors are capital and labor. The production technology determines how much output can be produced from any given amounts of these inputs. An increase in one of the factors of production or an improvement in technology leads to an increase in the economys output. 4. (5 for version 6,7) Consumption depends positively on disposable incomethe amount of income after all taxes have been paid. The higher disposable income is, the greater consumption is. The quantity of investment goods demanded depends negatively on the real interest rate. For an investment to be profitable, its return must be greater than its cost. Because the real interest rate measures the cost of funds, a higher real interest rate makes it more costly to...
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- Summer '10