Reference no: EM133078594

Consider the Solow growth model with population growth.

Other things remaining the same, assume there is unemployment in the economy, where the unemployment rate is given by u. This means only (1-u) L workers get employed in a country.

NOTE: Unemployment rate (u) is exogenously given.

Therefore the relevant Cobb Douglas Production function for any country is given by:

Y=AK^α*((1-u)L)^(1-α)

Given the above:

1. Find the expression for y, where y = Y/L, output per worker.
2. Given A, α, u, n and δ solve for k and y in steady state, following the steps covered in class. Note: in this model - capital dilution is measured by nk, as explained in class.
3. Now assume there are two countries: i and  j. Both the countries have identical technology, rate of depreciation, share of capital and population growth rate . However, u_i > u_j. Comparing the ratio of the output per worker at steady state between the countries, explain which country will be relatively more rich?