When capital is accumulated at the rate that maximizes consumption per worker in the steady state,the marginal product of capital is equal to the

Question

Quizplus · Accepted Answer

In the steady state, the economy does not have growth in any variable, hence the capital stock, consumption per worker, output per worker, and investment per worker are all constant. Therefore, the marginal product of capital in the steady state is equal to the investment per worker and depreciation rate, which is (s+δ) where s is the savings rate and δ is the depreciation rate. On the other hand, since consumption per worker is maximized, the output per worker is also maximized, and this occurs when the marginal product of labour equals the marginal product of capital. Therefore, (s+δ) must be equal to the population growth rate, g, since the marginal product of labour in the steady state is equal to the per-capita growth rate of the population, n+g. Thus, (s+δ) = g. Therefore, the correct answer is B, population growth rate plus the depreciation rate.

When Capital Is Accumulated at the Rate That Maximizes Consumption