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2. (External Wealth and Current Account) Consider a country with no initial wealth that exists for two periods. The country can produce 100 units of
2. (External Wealth and Current Account) Consider a country with no initial wealth that exists for two periods. The country can produce 100 units of output in the first period and 120 units of output in the second period. The country can borrow or lend on world markets at a world real interest rate of 5 percent. The household has the utility function u=min(C0;C1) and Ct is the household consumption in period t (a) Solve for the level of gross national expenditure in both periods. Assume there is no government spending nor investment. (b) What is the current account balance (and its components), and what is the financial account balance in each of the two periods? 2. (External Wealth and Current Account) Consider a country with no initial wealth that exists for two periods. The country can produce 100 units of output in the first period and 120 units of output in the second period. The country can borrow or lend on world markets at a world real interest rate of 5 percent. The household has the utility function u=min(C0;C1) and Ct is the household consumption in period t (a) Solve for the level of gross national expenditure in both periods. Assume there is no government spending nor investment. (b) What is the current account balance (and its components), and what is the financial account balance in each of the two periods
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