This paper analyzes the long-run effects and short-run effects of foreign aid on the domestic economy by using the Hamilton system and Laplace transform.It is found that an increase in the foreign aid has no long-run effect on the foreign borrowing,domestic capital accumulation and the foreign direct investment in the home country,but increases the steady-state consumption level the same amount.However,the short-run analysis presents that increasing foreign aid does not affect the initial consumption level and the initial consumption increase rate; but it affects the initial savings positively.