6. Endogenous labor productivity and the real exchange rate. The economy has two sec- tors, tradables and nontradables. Tradables are produced out of capital K and skilled labor S, which earn factor rewards of and h, respectively. Nontradables are pro- duced out of capital and raw labor L, which earns the factor reward w. All factor re- wards are expressed in terms of tradables. Let both sectors have linear-homogeneous production technologies, so that h=h(r), h'(r) < 0, according to the factor-price frontier in tradables. Individuals have uncertain lifetimes with a constant death proba- bility 1 each period. We will assume a continuous-time version of the Blanchard (1985) model of Chapter 3, exercise 3, under which the effective market discount fac- tor was p/(1+r). In continuous time, however, we shall denote the discount rate by r+, where is an instantaneous death probability (see Blanchard, 1985). The economy is in a steady state with constant factor rewards. (If you are uncomfortable?