Assume the aggregate production of an economy is , with , and (notation as in the Solow model with constant population). The savings rate that maximizes the steady-state rate of consumption equals:
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0 marksEconomics of Growth and DevelopmentHarrod–Domar and Solow growth modelsThe golden ruleModerateabout 2 min
DSE 2019 Question 16: Harrod–Domar and Solow growth models
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Assume the aggregate production of an economy is Yₜ=√(KₜLₜ), with Kₜ₊₁=(1-δ)Kₜ+Iₜ, Sₜ=sYₜ and Lₜ=L (notation as in the Solow model with constant population). The savings rate s that maximizes the steady-state rate of consumption equals: (A) 1/2 (B) δ/(1+δ) (C) None of the above (D) 1/(1+δ)
Also written as: Assume the aggregate production of an economy is Y_t=sqrt(K_tL_t), with K_(t+1)=(1-delta)K_t+I_t, S_t=sY_t and L_t=L (notation as in the Solow model with constant population). The savings rate s that maximizes the steady-state rate of consumption equals:
Harrod–Domar and Solow growth models has come up 113 times in 7 exams since 2006.
What this question tests
This question is on The golden rule, part of Harrod–Domar and Solow growth models in Economics of Growth and Development.
The saving rate that maximises consumption per worker in the steady state.
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