Exercise 14.18. * Consider the one-sector Schumpeterian model in discrete time analyzed in the previous exercise. Suppose that when a new innovation arrives a fraction ϕ of workers employed in the final good production will not be able to adapt to this new technology and will need to remain unemployed for one time period to “retool”. (1) Define an equilibrium in this economy. [Hint: also specify the number of unemployed workers in equilibrium]. (2) Characterize the balanced growth path of this economy and determine the number of unemployed workers in equilibrium. (3) Show that the economy will experience bursts of unemployment, followed by periods of full employment. (4) Show that a decline in ρ will increase the average growth rate and the average unemployment rate in the economy.