Consider the golden rule level of capital suppose a country, Ask an Expert

Economics

Consider the Golden Rule level of capital. Suppose a country found out that they are overcapitalized, that is their current steady-state capital stock per worker is greater than the Golden Rule level.

a) What does that imply for their level of MPK relative to the slope of the depreciation line? Explain.

b) What should this country do, if anything? What would be the result for i) consumption, ii) output and iii) investment. To answer this draw graphs showing the evolution of those variables over time in the style of Figure 8-10 on page 230.

c) Do you think it would be a realistic prospect to attempt to make those changes in a democracy? d) Finally, suppose the country foud out that it had TOO LITTLE capital instead. How would your answers to a), b) and c) change?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M91723082

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