A poor economy is at its steady state equilibrium. It is given a foreign aid package, to help it catch up with the developed world. Is this a good policy decision and why or why not?

As the production function remains the same, the economy has a temporary increase in output, but reverts back to its original steady state as the extra capital depreciates over time. This can be illustrated with the Solow model. Therefore, the policy is not useful as in the long run it does not have any effect on the economy. Instead, the productivity of the economy should be increased with technological exchange for example.