1.An open economy's output is expected to be 100 units forever and it can borrow and lend freely from the rest of the world at an interest rate 10%. There is an unanticipated 22 unit increase in output in the first period. That is, the economy's output is 122, 100, 100, 100, 100..... On t =0, 1, 2, 3, 4,5,6.... Assume that initial wealth (W_-1) is zero and NUT = 0.

a.Assuming that the economy always chooses a smooth consumption, what will be the consumption in the first period and thereafter?

b.What will be the trade balance in period 0 and thereafter? If the initial wealth is 0, what will be the wealth level at the end of period 0? What is the trade balance, NFIA, Current account, and wealth level at the end of period 1 and thereafter?