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please explain the formulas i have highlighted, thanks ! just the formulas please ! stock depreciates and has to be replaced. Also, in order to

please explain the formulas i have highlighted, thanks !

just the formulas please !

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stock depreciates and has to be replaced. Also, in order to keep the capital stock per effective worker constant we have to make investments so that the capital stock grows at the rate g + n. Therefore, maintaining a very high capital stock will be costly in terms of consumption. There is some level of capital that max- imizes consumption in steady state. To find this level of capital, note that on a steady state growth path, the capital stock grows at the rate g + n, so the necessary investment is AK 1 = AK +8 K = -K+8K=(n+g) K+8K=(n+g+8)K. Therefore, consumption per effective worker is Y EN EN =f ( k) - (n+ g+8) k. The first term is the production obtained from the capital stock and the second is the gross investment needed in order to maintain that level of capital per effective worker. The capital stock that maximizes steady state consumption is found by taking the derivative with respect to k. This gives us f ( k ) =n+g+8. To maximize steady state consumption, the capital stock should be increased until the marginal product of capital is equal to the sum of the population and tech- nological growth rates and the depreciation rate. This rule is called the Golden Rule. Increasing the capital stock beyond this level will not increase consumption because the investment necessary to maintain additional units of capital per effect tive worker will exceed the additional production obtained from the higher capital stock. The golden rule capital stock can be compared with the steady state capital stock that we will have in long-run equilibrium. It is determined by f ( k ) =7+8, 1 + /

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