Homework Answers
a) Golden Rule level of capital is where the marginal productivity of capital equals the depreciation rate.
MPK = Dep. Rate (L is assumed constant)
1/3 * k^-2/3 * L^2/3 = 0.03
k = L/(0.09)^3/2
b) Savings rate needed to achieve Golden Rule level of capital is s
s = Marginal productivity of capital/ Average Producitivity of Capital = 1/3(k)^-2/3*(L)^2/3 / (K^1/3*L^2/3)/K)
= 1/3= 0.33
Savings rate needed is 33.33%,
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