With population growth at rate n and labor-augmenting technological progress at rate g, the Golden Rule steady state requires that the marginal product of capital (MPK):
A) net of depreciation be equal to n + g.
B) net of depreciation be equal to the depreciation rate plus n + g.
C) plus n be equal to the depreciation rate plus g.
D) plus g be equal to the depreciation rate plus n.

Question

Quizplus · Accepted Answer

The Golden Rule steady state requires that the marginal product of capital (MPK) net of depreciation be equal to n + g. This is because the MPK net of depreciation represents the return to capital, and in the Golden Rule steady state, the return to capital must be equal to the rate of population growth plus the rate of technological progress in order to ensure that the economy is growing at the optimal rate.

With Population Growth at Rate N and Labor-Augmenting Technological Progress