Consider the Solow growth model with population growth as discussed in Chapter 4, Section 4.2.

Other things remaining the same, assume there is unemployment in the economy, where the unemployment rate is given byu.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^*((1-u)L)^(1-)

Given the above:

1. Find the expression fory,wherey = Y/L,output per worker.(1 mark for steps and 1 mark for correct expression: Marks Allotted:2 marks)
2. GivenA, , u, nandsolveforkandyin steady state, following the steps covered in class. Note: in this model - capital dilution is measured bynk,as explained in class. (For EACH of the variables: 1mark for steps and 1 mark for correct expression. Marks allotted:4 marks)
3. Now assume there are two countries:iandj.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,explainwhich country will be relatively more rich? (2 marks for steps and 2 marks for explanation. Marks allotted:4 marks)