Consider a small open economy with 2 periods. There is a single nonstorable good. Pref erences of the representative household are described by the following utility function: [Al-[01,02) 211101 + 11102. In period 1 and 2 households receive an endowment of Q1 = Q2 = 1|]. In period 1, households also pay a proportional tax on consumption Ta, and a proportional tax on their endowment sq. In period 2, households don't pay taxes. Households are born with zero initial nancial assets, 5"\" = 0. They have unrestricted access to international credit markets a the international interest rate r" = I]. In both periods the government consumes a constant level of expenditure G1 = G2 = 1. The government has unrestricted access to the world nancial markets. The initial nancial position of the government is zero, B = ll. [a] Set up the budget constraint of households for periods 1 and 2. Derive the intertemporal household budget constraint. [b] Set up the budget constraint of the government for periods 1 and 2. Derive the intertemporal government budget constraint. (c) Suppose n: = U. Find the equilibrium levels of consumption 01,02, tax on endowments T9, the current account in period 1 and the level of utility attained by households. [d] Now suppose TQ = {1 Find the equilibrium levels of consumption 01, 02, tax on consumption '31:, the current account in period 1 and the level of utility attained by households. (e) Compare the levels of utility obtained by the household in the last two parts. Provide intuition for your results