Consider the case of a poor country that receives foreign aid. The aid consists on donations to consumers which represent an increase in their lifetime income of 5%. One of your economist friend is against this foreign aid program. He says that it does not make people in the poor country better off.
1. The reason is that the foreign aid program:
a) shifts labor supply in the poor country to the right
b) shifts labor supply in the poor country to the left
c) does not affect the labor supply in the poor country
d) has an ambigious affect on the labor supply in the poor country
2. Therefore with the foreign aid program:
a) output decreases in the poor country
b) output increases in the poor counry
c) output does not change in the poor country