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Consider a variant of the Solow model, where labour is measured in efficiency units and government spending, Gt , is included on the assumption that
Consider a variant of the Solow model, where labour is measured in efficiency units and government spending, Gt , is included on the assumption that government spending makes private capital (Kt ) and labour (Nt ) more productive. The technological progress variable, At , in this model is called labour augmenting because it affects aggregate output by increasing the effectiveness of labour. The production function can be written in the following form
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