Question

Allow a one-time wave of penny-less immigrants who bring no capital at all. What would happen to per capita income in the short and long run? Sketch the time path of k to show what happens in the short and longer term. (Please have a graph in the answer)

Answer 1

The one time flow of immigrants will increase the population in the economy and since in the short run these immigrants do not contribute to the productivity of the economy, there will be a steep drop in the capital per capita and income per capita. Thoughy the economic and social situation might witness some stress in the short run, in the longer run sitiations would improve depending on the support the immigrants receive, if the immigrants are trained and skilled and start contributing to the production process in the economy, then the effect of increased population can get surpassed by increased capital and hence in the longer run capital per capita and income per capita will increase.