Question
Consider how unemployment would affect the Solow growth model. Suppose that output is produced according to...
Consider how unemployment would affect the Solow growth model. Suppose that output is produced according to the production function Y = Kα [(1 – u)L]1-α where K is capital, L is the labor force, and u is the natural rate of unemployment. The national saving rate is s, the labor force grows at rate n, and capital depreciates at rate δ.
a. Write a condition that describes the golden rule steady state of this economy.
b. Express the golden rule levels of capital per worker, k*G, and output per worker, y*G, as functions of the parameters, s, n, δ, α, and u.
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