Magill and Quinzii’s stock-market, overlapping generations (OLG) model with firm-specific capital exhibits perfectly flexible investment and full employment whereby GDP growth is exogenous. To model involuntary unemployment in a perfectly competitive stock-market economy aggregate investment needs to be inflexible. In this paper, inflexible aggregate investment refers to investors’ beliefs about the expected marginal efficiency of investment à la Keynes. To endogenize growth, human capital accumulation is introduced into Magill and Quinzii’s OLG economy. After deriving the intertemporal equilibrium dynamics, the existence and dynamic stability of steady states are investigated. It is shown that more investors’ optimism regarding the expected return on investment raises GDP growth and decreases unemployment.
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