5. Foreign aid: Consider a Solow economy that begins with a cap to $300 billion, and...

Solution Page No : 1 I am " assuming de 33 exting to you have solved those findings part I am a and b. so answering Pool C) us This growth that exercise tells model: in our simple solou the the Foreign aid donations have no long Jun ezzect on the economy , since they don't change the steady state of economy as seen in part a. However, there are two Short-term ezzects to speed up movement towards e Steady State and to temporarily increase output per capita. Foreign aid is helpful if a country is below 10 Steady state as seen in part b; because it reduces the time of the economy to reach the steady State of speeds up the process. However, if a country is already at its steady state, a gift of foreign capital causes depreciation to exceed total investment, and the economy's. so in order to get a long-term increase in output per person, countries would have to after something other than their amount of capital , such as total factor productivity (A) or as we say technological innovations.