Which two supply-side factors primarily determine the level of real GDP in an economy?

• A. Government spending and net exports
• B. The rate of inflation and the unemployment rate
• C. The quantity of labor and the quantity of capital
• D. The money supply and interest rates

Answer: (C)

Verified step by step guidance

1. Understand that real GDP on the supply side is determined by the productive capacity of the economy, which depends on factors that affect how much output can be produced.
2. Identify that government spending and net exports are demand-side factors, influencing aggregate demand rather than the supply capacity.
3. Recognize that the rate of inflation and the unemployment rate are indicators of economic conditions but do not directly determine the productive capacity or real GDP level.
4. Focus on the quantity of labor and the quantity of capital, which are key inputs in the production process and directly affect the economy's ability to produce goods and services.
5. Conclude that the money supply and interest rates influence demand and investment but are not primary determinants of the supply-side real GDP level.