Tutors on net
Tutors on NetTutors on Net

Pictorial Representation Of The Golden Rule

 Pictorial Representation of the Golden Rule

The golden rule of accumulation is explained in Diagram. As the golden rule associates to the maximisation of per capita consumption we plot productivity or output (Q), saving or Thrift (s), investment (I) and capital stock (K) as ratios to the quantity of labour (L) i.e.

                       *                            *
                        I           =          s [Q]                since I = K      ….Equation (1)
                        L                         [L]

Or,                    *                          *
                        I           =          g [K]                                        ….Equation (2)
                        L                         [L]

Where * over the variables refers golden age enormity. Equation (2) depicts that in a golden age per capita investment or saving should parity the symmetry growth rate times per capita capital stock.

            Thus, per capita investment is in a straight rational to capital labour ratio. Consequently, per capita investment is straight line from origin.

                       

Now, by substituting and equating Equations (1) and (2), we obtain
                                    *                                                           *
                                    I           =          s           or g      =         Q
                                                                                                  *
                                    L                       g                                   K
                                                                                                                                 *
Equation (3) demonstrates  the golden age growth rate which is the slope of the I/L curve.

Next, the manufacturing function;

                                         1-a
Q         =          A(t) (K*, L     )

Where A(t) is some invariable , by keeping t = 0 and dividing L on both sides, we obtain the following;

                                    Q         =          A{K}*
                                    L                         {L}

By switching variables in the above equation in association to the golden age, we obtain the following;
                                    *                           *
                                    Q         =          A{K}*                        ;
                                     L                         {L}

                                                           *
which is drawn in the diagram as the Q/L curve. By inequitable demarcation, we get the incline of the     *
                                    Q/L curve as follows:
                                        *                                  *
                                    d(Q/L)             =          a(Q)
                                       *                                   *
                                    k(K/L)                            (K)

                      *  *                                  *
Therefore, a (Q/K) is the incline of the Q/L curve that parities the marginal product of capital.

                          *
The incline of the I/L curve is equal to the golden age growth rate, g and the slope of the 
*         
Q/L curve parities the marginal product of capital, r is the rate of interest. As per the golden rule of accumulation, the growth rate should equal the rate of interest, g = r, in a maximum golden age.

                                                                          *       *          *
This is described in the above diagram, where Q/L, S/L and I/L are shown on the vertical side and
*
K/L on the horizontal axis; the maximum golden age according to the golden rule of accumulation is at symmetry capital – labour ratio
                                     *
                                    (K)*
                                    (L)
                                                                            *            *
where the vertical remoteness amid the curves Q/L and I/L is the largest;

It is AB in the diagram. Therefore, the golden rule of accumulation is fulfilled. When the vertical deviation among the two curves;
*          *
Q/L and I/L  are at the optimum.
It is here that the per capita consumption is optimised.

Online Live Tutor Per capita investment, Capital labour ratio:

    We have the best tutors in Economics in the industry. Our tutors can break down a complex Per capita investment, Capital labour ratio problem into its sub parts and explain to you in detail how each step is performed. This approach of breaking down a problem has been appreciated by majority of our students for learning Per capita investment, Capital labour ratio concepts. You will get one-to-one personalized attention through our online tutoring which will make learning fun and easy. Our tutors are highly qualified and hold advanced degrees. Please do send us a request for Per capita investment, Capital labour ratio tutoring and experience the quality yourself.

Online Pictorial Representation of the Golden Rule Help:

    If you are stuck with an Pictorial Representation of the Golden Rule Homework problem and need help, we have excellent tutors who can provide you with Homework Help. Our tutors who provide Pictorial Representation of the Golden Rule help are highly qualified. Our tutors have many years of industry experience and have had years of experience providing Pictorial Representation of the Golden Rule Homework Help. Please do send us the Pictorial Representation of the Golden Rule problems on which you need help and we will forward then to our tutors for review.