Begin with the simple Harrod-Domar growth equation g = s/v - d. This is a reasonable starting point if we assume that more investment is always undertaken in association with more employment and other complementary factors of production. The Republic of Xanadu has a domestic savings ratio of s = 20 percent and a capital-output of v = 5.

In general, $20 in foreign aid will permit Xanadu to invest $20 more than before, for any initial level of consumption. We thus generate a consumption possibilities frontier, which will be $20 above the PPF (i.e. it crosses the x and y axis at 120 instead of 100). This line is AA; note that it goes through points X' and Y'.