If the marginal product of capital net of depreciation equals 10 percent and the rate of population growth equals 2 percent, then this economy will be at the Golden Rule steady state if the rate of technological progress equals _____ percent.
A) 0
B) 2
C) 8
D) 10

Question

Quizplus · Accepted Answer

In the Golden Rule steady state, the rate of capital accumulation is such that the marginal product of capital net of depreciation equals the rate of time preference plus the rate of technological progress. Mathematically, this can be expressed as MPK - δ = ρ + g, where MPK is the marginal product of capital net of depreciation, δ is the rate of depreciation, ρ is the rate of time preference (assumed to be equal to the rate of population growth, g), and g is the rate of technological progress.

Substituting the given values, we get: 0.1 - δ = 0.02 + g. Rearranging, we get: g = 0.08, which is equal to 8%. Therefore, the answer is C.

If the Marginal Product of Capital Net of Depreciation Equals