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. Suppose that rich countries surprisingly commit to much higher official aid, to be maintained for several decades. 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? Explain your answers.