Consider a standard CobbDouglas production function F KLxL1o

Consider a standard Cobb-Douglas production function F (KL)-x®L1-owhere ? (0,1). Suppose a war reduces the country\'s capital stock. As a result, the fraction of income that goes to capital stays the same decreases could increase or decrease depending on how much the rental rate increases increases QUESTION 17 During an average month approximately 2 out of 100 workers quit their jobs and 3 out of 100 are laid off. Suppose that the average unemployment spell is 2 months. The long run, natural rate of unemployment is approximately 2 percent 9 percent 20 percent 5 percent

Solution

Ans 16)

It is uncertain as it depends upon the magnitude of rental cost of capital hence may or maynt increase or decrease

Option C is correct response here

Ans 17)

Natural rate of unemployment =fraction of people laid off +fractionof people quitted the jor =2%+3%=5%

Hence option D is corect