3. Variable-rate debt in the TNT model (35 points) Consider a two-period, small open economy with endowments on tradable and nontradable goods. The representative household has lifetime utility U(CT1'CN1'CT2 'CNZ) : 10g Cm + log CN1+ 610g CTl + $310ng Endowments are QN1 :QN2 :5 and QT1 : 2.5, Q12 27.5. Initial NFA is zero. The world interest rate is r' : 0.04 and the discount factor is ,6 =1/1.04 = 0.9615. a. Compute equilibrium consumption of both goods, the trade balance, and the real exchange rate in both periods. b. Suppose that after the household chooses how much to borrow/save in period 0, the world interest rate rises to r* :0.10. Recompute the equilibrium variables for period 2, and compute the difference between lifetime utility between this scenario and the scenario in