If the marginal product of capital net depreciation equals 8 percent,the rate of growth of population equals 2 percent,and the rate of labour-augmenting technical progress equals 2 percent,to reach the Golden Rule level of the capital stock the ____ rate in this economy must be _____.

Question

Quizplus · Accepted Answer

The Golden Rule level of capital stock occurs at the point where the marginal product of capital equals the rate of depreciation. In this case, the marginal product of capital net depreciation is 8% - 8% = 0%. Thus, the economy is currently on the Golden Rule level of capital stock. To stay on this level in the face of population and technological growth, the economy must save more to counterbalance the effects of population growth and technological progress. Therefore, the correct answer is A) saving; increased.

If the Marginal Product of Capital Net Depreciation Equals 8