Blue Sky is more and more popular in Albuquerque, and the mayor is not convinced by Saul Goodman's analysis (everybody knows he is a bit dodgy, he even claimed to be an economist which we all know it's not true). The mayor office then hires Gustavo Fring, owner of the restaurant chain Los Pollos Hermanos and well known for his business acumen, to replace Saul Goodman in advising the mayor. After reading the report, Gustavo realizes that in Goodman's model G has no effect on the workers. Meth kills people, and we end up with a lower population growth rate. Gustavo therefore assumes that government spending increases the population growth rate, i.e. N'=(1+n+g)N. All the rest is identical to Saul Goodman's model. The mayor requests the details of the reasoning, and a policy recommendation: should we go ahead with the War on Meth?

e. Show that the steady state can be computed as the solution of this equation: szf(k*) = sg+(n+g+d)k*

f. Use a diagram to show how steady state predictions differ in Goodman's and Fring's models (assume that g is such that we have two steady states, and ignore the one with low capital per worker). Can you explain the intuition behind this different prediction? What would be the recommendation in terms of government spending, compared to what Saul Goodman was suggesting? Should g be higher or lower?