Increase Saving- No!

The Steady State

The steady state capital-labor ratio (k) is found where the savings function crosses the line representing the new capital needed to replace depreciation and for capital widening due to the growth of the labor force.

The Golden Rule

The "golden rule" steady state level of the capital-labor ratio (k) is found where the steady state level of consumption per worker (C/L) is highest. That is where the slope of the production function is equal to the growth rate of the labor force (n) (asuming no depreciation for the sake of simplicity).

The final step is to set the savings rate (S/Y) so that the savings function crosses the labor force growth curve at the "golden rule" level of the capital-labor ratio.

Lower Labor Force Growth

If the population grows older and the labor force growth rate (n) falls. It will mean a flatter labor force growth rate curve. The golden rule level of the capital labor ratio will be higher

Increase in Productivity

Effect of Alpha on Consumption Per Capita

Alpha is the support ratio, the ratio of workers to dependents. As alpha increase so also does per capita consumption (C/P).

Effect of the labor force growth rate "n" on Consumption Per Capita

As the rate of growth of the labor force (n) increases, per capita consumption (n) decreases.

The Steady State The steady state capital-labor ratio (k*) is found where the savings function crosses the line representing the new capital needed to replace depreciation and for capital widening due to the growth of the labor force.
The Golden Rule The "golden rule" steady state level of the capital-labor ratio (k*) is found where the steady state level of consumption per worker (C/L) is highest. That is where the slope of the production function is equal to the growth rate of the labor force (n) (asuming no depreciation for the sake of simplicity). The final step is to set the savings rate (S/Y) so that the savings function crosses the labor force growth curve at the "golden rule" level of the capital-labor ratio.
Lower Labor Force Growth If the population grows older and the labor force growth rate (n) falls. It will mean a flatter labor force growth rate curve. The golden rule level of the capital labor ratio will be higher
Increase in Productivity
Effect of Alpha on Consumption Per Capita Alpha is the support ratio, the ratio of workers to dependents. As alpha increase so also does per capita consumption (C/P).
Effect of the labor force growth rate "n" on Consumption Per Capita As the rate of growth of the labor force (n) increases, per capita consumption (n) decreases.