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Thesis: The Golden Rule

The prime idea behind the Golden Rule is that the state could move the economy to a new stable state. This is possible by choosing the steady state at which consumption is maximized or optimized. In order to alter the stable state, the relevant authorities have to change the rate of savings.

The Golden Rule steady state, articulates that the marginal product of capital net of depreciation equals the population growth rate plus the rate of technological progress. This is given by the general equation MPK- d = n + g. In addition, the capital per worker change can be determined by variables that include investment or saving per worker, population growth and depreciation (Acemoglu, 2008).

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