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(CTI, CNI, CT2, CN2) = log C + log CMI + blog CT2 + blog CN2 Endowments are ON = ON2 = 5 and Or1 = 2.5, Or2 = 7.5. Initial NFA is zero. The world interest rate is r* = 0.04 and the discount factor is b = 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