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What is the “golden rule of savings and consumption” and under what conditions will an economy...

What is the “golden rule of savings and consumption” and under what conditions will an economy reach its golden rule consumption level?

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Answer #2

The golden rue level of savings is the level of capital accumulation which maximizes the steady-state level and growth of consumption in an economy i.e. deviation from the golden rule leads to lower consumption.

The condition for reaching the golden rue consumption level is when the slope of the production line is equal to the slope of the depreciation line. The slope of production function = marginal product of capital and slope of depreciation line = depreciation rate

Thus, condition is , marginal product of capital = depreciation rate

answered by: anonymous
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