Question 6

a. Graphically depict the Golden rule level of capital. Label all points clearly. (4 marks)

b. Explain the concept of the Golden rule level of capital. (2 marks)

c. Why might the Golden Rule steady state be preferred to the initial steady state? (3 marks)

d. Look at the hypothetical data in the table below:

Real GDP per capita

Nigeria $1,000

Mexico $8,000

China $15,000

United States $33,000

Fact is, changes in income over time explains economic growth of a country. Using two sources

of growth, account for the large differences in income per capita across these countries?

(8marks)

e. Discuss three policies governments can use to promote economic growth. (6 marks)