Question

Evaluate whether this statement is correct:
“Planet Econ consumes all wage income and saves all capital income. In this case, this economy reaches the
Golden Rule level of capital when the factors of production earn their marginal product.”

1/ assume no technological growth to simplify the math

2/ remember to set Aggregate Savings = Aggregate Investment

3/ think in terms of evolution of capital accumulation

4/ capital income = capital share of income x income

5/ at steady state, change in capital-labour ratio is 0

Answer 1

The above equality states that if the savings rate is equal to the capital share of income , then the steady-state is a golden rule steady state. Therefore, the above statement is proven to be true.