Question

Derive the conditions for steady state growth in the Solow model. What are its implications? In what respects is the

golden rule different from the steady state?
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Answer 1

Answer:

In Solow model (and others), the equilibrium growth path is a steady state in which “level variables” such as K and Y grow at constant rates and the ratios among key variables are stable.

Explanation:

The difference between the two lines is consumption; the golden rule capital stock is the k that maximizes consumption. Mathematically, this is where the slope of the production function (MPK) is equal to the slope of the depreciation line (δ). at steady state.