2. Consider a two-period small open endowment economy with free capital mobility. Households live for one period. The endowment is 10 in both periods. The utility function of households living in period 1 is InC, and that of households living in period 2 is InC2. The government lives for 2 periods and has access to the world financial market, where the interest rate is 10 percent r = 0.1. Government spending is 2 in both periods (G1 =G2 = 2). The government levies lump-sum taxes in periods 1 and 2, denoted 7, and 72, respectively. Finally, assume that households and government start their lives with no debts or assets. (6 marks each) (a) Suppose that 72 = 1. Calculate Ti. (b) What is the primary fiscal deficit in period 1? (c) Calculate consumption in periods 1 and 2. (d) Calculate the trade balance and the current account in period 1. (e) Suppose now that the government does not have access to lump-sum taxes (7) = 7? = 0). Instead. the government levies a proportional tax on consumption at the rates n and 72 in periods 1 and 2, respectively. Suppose that ry = 0.1. Calculate n. C1, C2