Increase in gifts from a rich country to developing countries and its impact on wage and employment both in short run and long run.
In his recent book "The End of Poverty", economist Jeffrey Sachs of Columbia University advocates a big increase in gifts (not loans) from rich countries to developing countries. Assume which rich countries surprisingly commit to much higher official aid, to be maintained for several decades. Illustrate what would be the effect of such aid on?
(a) The real wage and hours worked in the short run;
(b) The real wage and hours worked in the long run? describe your answers.