Question
Atlantis is a small, open economy, with a constant annual output of 2,000 and G=I=W=0 until year-1.Inyear 0, Atlantisgetsan investment opportunity which requires animmediate, one-timeinputof50
Atlantis is a small, open economy, with a constant annual output of 2,000 and G=I=W=0 until year-1.Inyear 0, Atlantisgetsan investment opportunity which requires animmediate, one-timeinputof50 and will raiseitsoutputpermanentlyby9.4 fromyear 1 onward.Due to its good credit ratingsand low sovereign risk, Atlantis can borrow/lend internationally at a constant interest rate of10%,subject to its long-run budget constraint(LRBC).
If Atlantisundertakes this investmentinyear 0, compute itsconsumption, trade balance, NFIA(net factor income from abroad), current account and external wealth inyears 0,1,2,3, ...Report the intermediate steps andfill outthe table below.Explain intuitively whether Atlantis'investment affects the present value of its trade balance inyear-0 terms.
year | -1 | 0 | 1 | 2,3,... |
Output | 2,000 | 2,000 | 2,009.4 | 2,009.4 |
investment | 0 | 50 | 0 | 0 |
consumption | 2,000 | |||
Trade balance | 0 | |||
NFIA | 0 | |||
Current account | 0 | |||
External wealth | 0 |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started