B: The Solow growth model with effective labour and government spending Questions 21-25 relate to the following information. Consider the following production function: I = K? 14fo Gga where Y; denotes output, K; the capital stock, N; the labour input and A; is the technological progress variable. In this modelA; is labour augmenting because it affects aggregate output by increasing the effectiveness of labour. Note thatA;N; is commonly referred as "effective labour.\" G; is government spending, and it is included on the assumption that it makes private capital K; and N; more productive. Also, assume that the government runs a balanced budget, that is: Tf=Gf=TYt where T is a tax rate on output. Consumers save a constant fraction S of disposable income. The growth rates in N; and A; are equal to , and I'll, respectively. The depreciation rate equals d. Finally, the capital stock, K;, evolves according to: Kr+l = If + (1 (DE:- What is the steady state level of capital per effective labour, k* ? O k* S (1-T) g 1 - a = m+n+d O 1-a-B B S 1-T I K* = mtn+d O 1-a-B a+8-1 S 1-T I k* = n+d O 1-a-8 a+8-1 S 1-T I atp K* = mtn+d