The level of the capital-labor ratio that maximizes consumption per worker in the steady state is known as the
A)Solow residual capital-labor ratio.
B)Golden Rule capital-labor ratio.
C)q theory capital-labor ratio.
D)dynamically efficient capital-labor ratio.

Question

Quizplus · Accepted Answer

The level of the capital-labor ratio that maximizes consumption per worker in the steady state is known as the Golden Rule capital-labor ratio. This is the level of capital-labor ratio that balances the benefits of having more capital per worker (higher productivity and income) with the cost of having less consumption per worker (since more resources are allocated to capital accumulation rather than consumption). At the Golden Rule capital-labor ratio, consumption per worker is maximized, which is desirable from a welfare perspective.

The Level of the Capital-Labor Ratio That Maximizes Consumption Per