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Refinements
Golden Rule Level of Capital
Is there a level of capital stock that the economy would prefer over
any other?
Yes, steady state with the highest level of consumption.
Golden Rule level of capital accumulation denoted as k*Gold.
Does the economy automatically move to this level of the capital
stock?
NO, it moves to the level k* where its actual savings just equals breakeven
investment necessary to maintain k*.
A Government my try to influence savings rate, s, to move the economy to
the Golden Rule level.
This is very difficult to achieve.
Golden Rule Level of Capital
dk
c*gold
sgoldf(k)
i*gold
k*gold k
Policies to Promote Growth
Evaluating the Rate of Saving.
Evidence for US is that MPK - d (8%) > n + g (3%).
U.S. is below the Golden Rule level of capital so should try to increase saving rate.
Changing the Rate of Saving.
Public policy affects Public saving directly and may affect private saving indirectly
through incentives.
Allocating the Economys Investment.
Govt may invest in infrastructure for physical capital, encourage education for human
capital, target certain types of capital to build positive externalities in capital.