Answer :
Final answer:
The Golden Rule of the capital stock is the level of capital that maximizes consumption per worker in the steady state, where the net investment is zero due to the exact balance between depreciation and saving. Hence the correct answer is option b, maximizes the consumption per worker in the steady state.
Explanation:
The Golden Rule of the capital stock refers to the level of capital that maximizes consumption per worker in the steady state. The steady state is the condition where the capital stock in the economy is constant over time, meaning the amount of capital lost to depreciation is exactly offset by saving. This results in the net investment being zero. When analyzing factors like investment rate, depreciation rate, and growth rate of output, economists look to understand how changes in these rates affect output per worker and the balanced-growth ratio of the capital stock to GDP.
For instance, with a given investment rate of 0.24, depreciation rate of 0.085, and an output growth rate of 0.035, one can compute projections of future output per worker. Additionally, if there are changes in technology or the workforce growth rate, these will also influence the economy's balanced-growth path, leading to adjustments in the capital stock, output, and ratios between them. Hence the correct answer is option b, maximizes the consumption per worker in the steady state.
