Consider how unemployment would affect the Solow growth model. Suppose that outp

Question

Consider how unemployment would affect the Solow growth model. Suppose that output is produced according to the production function Y = K^a(1-U)L^1-a , 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 ?.
Express output per worker (y=Y/L) as a function of capital per worker and the natural rate of
unemployment.
b.
Write an equation that describes the steady state of this economy.c.
Suppose that some change in government policy reduces the natural rate of unemployment.
Describe how this change affects output both immediately and over time. Is the steady state
effect on output larger or smaller than the immediate effect?

Explanation / Answer

In addition to above given information, in order to maintain steady state, capital must depriciate at the rate at which it exhaust saving rate.

So it will be dk=sy.

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.