as a factor of production, capital refers to the

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To understand the role of capital as a factor of production, we examine what each option implies about capital's nature.
Option 1: 'stocks and bonds issued by businesses to raise funds' — These are financial instruments, representing claims on future profits or cash flows, not physical inputs used in production. They relate to financing, not to capital in the classical sense of production inputs.
Option 2: 'financial investment of businesses' — This is a broad description of money invested for potential returns, again more about finance than the physical input required to manufacture goods. It does not capture the tangible means by which production occurs.
Option 3: 'currency in circulation and deposits in financial institutions' — This describes money as a medium of exchange and store of value, not the tools or machinery used in creating goods and services. It is not the productive input termed capital in economics.
Option 4: 'tools and machinery used to produce goods and services' — This matches the standard economic definition of capital as physical capital or capital goods, i.e., man-made inputs like machines, equipment, and factories that facilitate production.
Option 5: 'money available to start a business' — While money can fund production, the term 'capital' in the production function refers to physical capital goods, not merely the financial resources or money on hand. It is distinct from the financial capital used to acquire those physical assets.
Overall, the only choice that accurately reflects capital as a production input is option 4, since it describes the tangible assets that enable production processes to occur.

AP Economics-Hillebrand AP Microeconomics Sem 1 Exam 2025 - Requires Respondus LockDown Browser

as a factor of production, capital refers to the

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