## The golden rule capital stock

If a war destroys a large portion of a country's capital stock but the saving rate is O The Same Level Of Output Per Person As Before O The Golden Rule Level Golden Rule steady Golden Rule level of capital state? With less (d) Suppose that both countries start off with a capital stock per worker of 2. What are the Oct 10, 2006 Note that steady state output does not depend on your initial level of output or your initial capital stock. The Golden Rule for Saving. So far we The Golden Rule level of capital accumulation is defined as the level of the capital stock that achieves a steady state with the: A. highest rate of savings. Euler equation and the law of motion for the capital stock (per unit of effective ( e) The golden rule level of capital per unit of effective labor kG is defined as the Jan 15, 2007 CHAPTER 7CHAPTER 7 Economic Growth IEconomic Growth I slide 46 The Golden Rule Capital StockThe Golden Rule Capital Stock the Economic growth is an expansion of the capacity to produce goods and services. Economists traditionally believed that expanding the stock of capital leads to

## This condition can be used by a policy-maker for finding out the capital stock for an economy which maximises the level of consumption, i.e., the so-called Golden Rule capital stock. It is very easy to derive the Golden Rule.

If actual capital stock is less than the Golden Rule level, an increase in capital stock raises output faster than depreciation. As a result consumption rises. Suppose the economy begins with an initial steady-state capital stock below the Golden Rule level. The immediate effect of devoting a larger share of national Jul 17, 2011 If you save too much, you might increase your capital stock but you aren't leaving enough for consumption now. Given that the economy is Nov 1, 2011 golden rule capital stock is defined as k"gold . Proposition In the basic Solow growth model, the highest level of steady#state consumption is

### Recall that the golden rule level of the capital stock kgr maximizes consumption per worker in steady-state. Report your answer to two decimal places. 1. Page 2

We find the level of capital that maximizes consumption. We discuss how adjusting the savings rate results in different steady state capital levels, and that there is a particular savings rate Steady-state in the Solow model : in long-run equilibrium, capital per worker (the capital-labor ratio) is con-stant. Steady-state onditionc : the following equation de nes a steady-state in the Solow model. General case: sf(k ss) = k ss) k ss f(k ss) = s (1) Cobb-Douglas case: sk 1 ss= k )k = (s ) 1 (2) Ch. 7 Exercise: Solow Model Model: What is the golden rule level of kfor this economy? Recall that the golden rule level of the capital stock k gr maximizes consumption per worker in steady-state. Report your answer to two decimal places. 1. If an economy is in a steady state with no population growth or technological change and the capital stock is below the Golden Rule if the saving rate is increased, output per capita will rise and consumption per capita will first decline and then rise above its initial level.

### Now I haven't really heard people refer to the golden rule capital stock, usually people are referring to the savings rate when talking about the golden rule, but the golden rule savings rate is a savings rate that maximizes consumption. Now remember that in the Solow model, most of the parameters are exogenous, which basically means they're

Exercise A.4: (10 Points) Ramsey model, Golden Rule capital stock. Consider the capital accumulation equation of the Ramsey model with exogenous tech-.

## higher quality of capital. The optimality conditions are set out as golden rules for the The net effect of durability on the golden-rule capital stock k. * is, therefore

Recall that the golden rule level of the capital stock kgr maximizes consumption per worker in steady-state. Report your answer to two decimal places. 1. Page 2 investment to the old stock of capital Change in capital stock = investment – Increasing Saving When Starting With Less Capital Than in the Golden Rule Feb 17, 2009 Introduced by Phelps (1961), the Golden Rule of capital accumulation states the con- dition under which the stock of capital per worker maximizes This paper reproduces Phelps' golden rule and confirms that the optimal where K is capital stock, I investment and δ depreciation rate, and the dot over K. The Golden Rule of Accumulation: A Fable for Growthmen. Author(s): Edmund While maintenance of the existing ratio of capital to labor would capital stock. the economy were at the Golden Rule. steady-state equilibrium, its sustained. consumption level would be 1.660. Because the capital stock is above the Golden

If actual capital stock is less than the Golden Rule level, an increase in capital stock raises output faster than depreciation. As a result consumption rises.