Question
Consider the Solow-Swan model with population growth and labor-augmenting technological progress. Employment L(t) grows at the constant rate n, and technology improves [i.e., A(t) grows]
Consider the Solow-Swan model with population growth and labor-augmenting technological progress. Employment L(t) grows at the constant rate n, and technology improves [i.e., A(t) grows] at the constant rate x. The production function Y (t) = F[K(t); A(t)L(t)] exhibits constant returns to scale. Competitive firms maximize their profits, equating the marginal product of labor to the real wage w(t), and the marginal product of capital to its user cost r(t) + ? (the real interest rate plus the depreciation rate). What are the growth rates of the real wage and the real interest rate along the balanced growth path of this model?
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