Question

1. Okun's law shows that when the unemployment rate is below the natural rate,

   	A.	inflation is higher than expected.
   	B.	inflation is lower than expected. .
   	C.	output is below potential.
   	D.	output is above potential

1. Constant returns to scale implies that if N and K both increase by 3% that

   	A.	Output (Y) will increase by 3%.
   	B.	Y/N will increase by 3%.
   	C.	Y/N will increase by less than 3%.
   	D.	the capital-labor ratio will increase by 3%.

please answer both questions... kindly.

thanks

Answer 1

Answer 1) Okun's law shows that when the unemployment rate is below the natural rate, inflation is higher than expected because when the natural rate of unemployment is more than the current level of unemployment it means output is higher than the natural rate of output as result inflation is higher than expected.

Hence option A is the correct answer.

2) Constant returns to scale implies that if N and K both increase by 3% that Output (Y) will increase by 3%. Constant returns to scale occur when expanding the number of inputs leads to an equivalent rise in the output.

Hence option A is the correct answer.

Note: Please like my answer and comment for further clarification, it's urgent.