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Answer :
The golden rule level of capital per worker refers to the optimal amount of capital per worker that maximizes consumption in an economy.
It represents the balance point where the benefits of additional capital accumulation are no longer greater than the costs. When capital per worker exceeds the golden rule level, consumption per worker tends to decrease. This happens because as capital per worker increases beyond the optimal level, the marginal productivity of capital diminishes. In simpler terms, the additional units of capital become less effective in generating output. As a result, the extra capital does not contribute as much to increasing consumption, leading to a decline in consumption per worker.
To understand this concept, let's consider an example. Imagine an economy where each worker has access to a certain amount of capital, such as machinery and equipment. Initially, the capital per worker is below the golden rule level. As capital per worker increases, the productivity and output of each worker also increase, leading to higher consumption per worker. This trend continues until the golden rule level is reached.
However, if capital per worker exceeds the golden rule level, the productivity gains become smaller and eventually start to decline. At this point, the extra capital does not generate enough additional output to compensate for the increasing costs associated with accumulating more capital. As a result, consumption per worker decreases.
In summary, the golden rule level of capital per worker represents the optimal amount of capital that maximizes consumption in an economy. When capital per worker exceeds this level, consumption per worker tends to decline due to diminishing returns.
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