Golden Rule Accumulation Conditions

The Golden Rule of Accumulation, developed by Edmund Phelps, describes the optimal level of capital stock in an economy that maximizes steady-state consumption per capita. It is achieved through a specific savings rate.

Analysis of Conditions for Optimum Capital Accumulation

We evaluate the two conditions presented in the context of the Golden Rule:

• Condition I: Savings rate is unique.
  The Golden Rule identifies a specific, unique savings rate ($s_g$) that leads to the steady-state capital stock ($k_g$) yielding the highest possible consumption level. Therefore, this condition is true.
• Condition II: Marginal productivity of capital be equal to capital depreciation.
  The general condition for the Golden Rule steady state is that the marginal product of capital ($MPK$) equals the sum of the depreciation rate ($\delta$) and the growth rate of the economy (population growth $n$ plus technological progress $g$). The formula is:
  
  $ MPK = \delta + n + g $
  Condition II states $MPK = \delta$. This specific equality holds true for the Golden Rule only when population growth and technological progress are zero (i.e., $n=0$ and $g=0$). Since the correct option states both conditions are true, we infer that the question operates under this simplified assumption ($n=0, g=0$).

Conclusion on Conditions

Under the implied assumption of zero population growth and zero technological progress, both conditions are met for the Golden Rule of Accumulation:

• The savings rate ($s_g$) is uniquely determined.
• The marginal productivity of capital equals the capital depreciation rate ($MPK = \delta$).

Therefore, both statements are considered true.