Economics • Economic BasicsHard
In growth economics, what does the 'Golden Rule Level of Capital Accumulation' determined in the Solow-Swan model signify?
A. The capital stock level that maximizes steady-state consumption per worker✓ Correct Answer
B. The precise point where inflation equals zero in a growing economy
C. The exact balance between foreign direct investment and foreign portfolio inflows
D. The maximum possible rate of population growth sustainable without technological progress
💡 Solution & Explanation
The Golden Rule level of capital accumulation identifies the specific capital-labor ratio in the Solow-Swan growth model that maximizes steady-state consumption per worker rather than total output or investment. At this optimal point, the marginal product of capital equals the sum of the population growth rate, technological progress rate, and depreciation rate. Maximizing total output would require an infinitely large capital stock that consumes all production for maintenance and depreciation. Steady-state equilibrium occurs when investment equals capital depreciation.
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