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With the aid of appropriate diagram(s), explain how the Golden Rule level of capital is decided...

With the aid of appropriate diagram(s), explain how the Golden Rule level of capital is decided without population growth and technological progress and what could do to reach the Golden Rule level if the initial steady state is higher than the Golden Rule level? What will happen to the real income, consumption and investment?

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Answer #1

The golden steady state is reached where the consumption level is maximum. It is stage of production where the economic consumption is maximum.

Following is the diagram :

conditions for golden steady state:

MPK = d or depreciation.

If steady state is above the golden steady state level, then the there will be a rise in the consumption and saving or investment will fall. Fall in the investment will reduce the level of income as well in the near future.

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