This appendix is a reminder for your convenience.

Appendix 1: Growth and Production Model

In this model, we have an aggregate production function F that requires labour (L) and
capital (K) services as inputs in order to produce some final good Y . Given the constant
returns to scale property of F , we can also think of this model in terms of per-worker
variables: y = f (A, k), where y := Y /L and k = K/L. An example of f is given as the
Cobb-Douglas function y = Ak 1/3 , where A > 0.

Appendix 2: The Bathtub Model of (Un)employment

The variables Et and Ut , respecLet the long-run labor force be a constant given by L.
tively, denote total employment and total unemployment levels.
For each date t 0, the model says:

Et + Ut = L,
and,
Ut+1 = sEt + (1

f )Ut

where 0 < f < 1 is the job finding rate and 0 < s < 1 is the job separation rate.

Appendix 3: Elementary Algebra and Functions

Let a, b, c, and d be some real numbers, unless otherwise stated.
Arithmetic operations. These are some useful reminders of elementary algebra. Other
operations can be derived from combining some of these operations.
_ ab = ba.
_ ab + ac = a(b + c).
_ a

b
c

_ a
_

a
b

ab
.
c

b = a + ( b).
+

c
d

ad+bc
,
bd

for any b 6= 0 and d 6= 0.

_ 0 a = 0.

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Exponent Properties. These are some useful properties to know when working with
exponents. Other properties can be derived from combining some of these above.
_ a0 = 1, for any a 6= 0.
_ a1 = a.
_ a

1
.
ab

_ ab ac = ab+c .
c

_ abc = (ac )b = ab .
p
_ a1/b = b a.
Functions and Graphs of Functions. Assume all functions f and g below are real
valued.
_ Ane (linear) functions of a single variable x: f (x) = mx + c, where m, c 2 R (i.e.
are real numbers). Let y = f (x).
` The first derivative function (or gradient) of f is denoted as f 0 and f 0 (x) = m,
for every x 2 R.
` The y-intercept of graph(f ) in (x, y)-space is c.
` The x-intercept of graph(f ) in (x, y)-space is

c/m.

_ Exponential, log and natural-log functions:

` ab = c () b = loga (c).

` f (x) = eg(x) () g(x) = loge (f (x)) = ln(f (x)), for every x > 0, where
e 2.718281828.
` ln(ab) = ln(a) + ln(b).
` ln(a/b) = ln(a)

ln(b).

` ln(a ) = b ln(a).
` ln(1 + a) a if

1 < a < 1 is very small number.

_ Power functions with domain R+ :

f (x) = c xa ,

where

1 < a < +1, c > 0 and x

0.

` The first derivative (gradient) function exists and, when evaluated at some
x 0, it has the value f 0 (x) = c a xa 1 .
` Some geometric properties of the graphs of f and f 0 relevant to our usage is
as follow. Note that f (0) = 0. If a > 0:
q then the value f (x) is strictly increasing in x;
q and also, if
a < 1, then f 0 (x) is decreasing in x; or
a > 1, then f 0 (x) is increasing in x; or
a = 0, then f 0 (x) is constant.
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