What is the benefit of foreign aid

Reference no: EM132118491

Question: Foreign aid: Consider a Solow economy that begins with a capital stock equal to $300 billion, and suppose its steady-state level of capital is $500 billion. To its pleasant surprise, the economy receives a generous gift of foreign aid in the form of $100 billion worth of capital (electric power plants, machine tools, etc.).

(a) Use the Solow diagram, other graphs, and the mathematics of the Solow model to explain what happens to the economy, both immediately and over time. By what proportion does consumption per person initially increase? What happens to consumption in the long run?

(b) Suppose instead of starting below its steady state, the economy begins in steady state, with a capital stock equal to $500 billion. Answer part (a) for this case.

(c) Summarize what this exercise teaches you about the possible consequences of foreign aid. In this example, does foreign aid exert a long-run effect on the welfare of poor countries? What is the benefit of foreign aid?

Reference no: EM132118491

Questions Cloud

Explain the principle of transition dynamics : Apply the principle of transition dynamics to rank the countries in order of expected growth rate over the coming decades, from fastest to slowest.

Healthcare quality operations in healthcare organization : Describe the recommended organizational structure for healthcare quality operations in a healthcare organization.

Different organizational structures : Compare and contrast different organizational structures, identifying their key elements.

Flipping a fair coin and note the result : An experiment begins with flipping a fair coin and note the result, if a head occurs, a fair die (with 6 faces) is rolled twice

What is the benefit of foreign aid : Summarize what this exercise teaches you about the possible consequences of foreign aid. In this example, does foreign aid exert a long-run effect.

What are the major factual issues raised by the case : What are the main alternative actions or policies that might be followed in responding to the ethical issues in this case?

Find the p value for the relationship : Find the p value for the relationship?

Understanding these varibles aid in your academic pursuits : You shared additional comments with the class regarding these variables. How might understanding these varibles aid in your academic pursuits?

Compute the growth rate of tfp : Growth accounting: Consider the following (made-up) statistics for some economies. Assume the exponent on capital is 1/3 and that the labor composition.

User Account

All Pages