Question
Consider a two-period endowment economy populated by identical households with preferences defined over consumption in period 1, C1 and consumption in period 2, C2, and
Consider a two-period endowment economy populated by identical households with preferences defined over consumption in period 1, C1 and consumption in period 2, C2, and described by the utility function ln(C1) + E1ln(C2) (2) where C1 denotes consumption in period 1, C2 denotes consumption in period 2, and E1 denotes the expected value operator. Each period, the economy receives an endowment of 10 units of food (Q1 = Q2 = 10). Households start period 1 carrying no assets or debts from the past (B 0 ). Financial markets are incomplete. There is a single internationally traded bond that pays the interest rate r . a) Compute consumption, the trade balance, the current account, and national saving in period 1. Do not forget to include all your derivation and equations. [4 points]
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