How does Go decide whether a variable lives on the stack or the heap?

The language spec does not mention stack or heap. The compiler decides, using escape analysis. If it can prove a value is never referenced after its function returns, and the value's size is known and not too large, the value goes in the goroutine's stack frame. Otherwise it "escapes" to the heap, where the garbage collector manages it.

Stack allocation is almost free: the stack pointer moves and the memory disappears when the frame is popped. Heap allocation goes through mallocgc, has to be zeroed, and adds work for the GC.

func onStack() int {
    x := 42 // never outlives the frame: stays on the stack
    return x
}

func onHeap() *int {
    x := 42 // its address outlives the frame: moved to heap
    return &x
}

Gotcha: new(T) and &T{} do not force heap allocation, and a plain local variable is not guaranteed to stay on the stack. C and Java intuitions do not apply here. Returning &x is also perfectly safe in Go.

What the interviewer is looking for: you know placement is a compiler decision that you can inspect, not something you choose with syntax.