2 Sudden Stops and the Real Exchange Rate Consider a two-period small open economy populated by a large number of households with preferences captured by the following lifetime utility function In(CION) + In (OFCY) where CF and Of for t = 1, 2, denote consumption of tradable and nontradable goods in period t, respectively. Households are endowed with Qu = 1 and Q; = 2 units of tradables and ON = Q, = 1 units of nontradables in periods 1 and 2. Households start period 1 with no assets or debts. The world interest rate is zero. 1. Calculate the equilibrium levels of the current account and the relative price of nontrad- ables in terms of tradables in period 1, denoted CA, and p1, respectively. 2. Suppose now that suddenly the world interest rate increases from 0 to 10 percent. Calcu- late the new equilibrium levels of the current account and the relative price of nontradables in terms of tradables in period 1