Consider a two-period, small, open economy. In period 1, households receive an endowment of 4 units of tradable goods and 1|] units of nontradable goods. In period 2, households receive 12 units of tradables and 10 units of nontradables {QT = 4, Q; = 12, and Q\" = Q'Q'r = I'll]. Households start period 1 with no assets or liabilities [ 3' = ]. The country enjoys free access to world nancial markets, where the prevailing interest rate is 12 percent {H = [1.12). Suppose that the household's preferences are dened over consumption of tradable and nontradable goods in periods 1 and 2, and are described by the following utility function, In C? + In CF | in C; + In Cf, where C? and Cf denote, respectively, consumption of tradables and nontradables in period t = 1, 2. Let p1 and p2 denote the relative prices of nontradables in terms of tradables in periods 1 and 2, respectively. Based on the above information, answer the following questions. {:1} [15 Marks] Assume that the domestic consumer price index in period t = 1, 2, denoted H, is dened by =(P=T)i(PE\")iI where PET and Pi\" denote the nominal prices of tradables and nontradables in period t = 1,2, respectively. Similarly, suppose that the foreign consumer price index is given by at = (Tm)2 (N*) 1 where the superscript x: denotes foreign variables. Foreign nominal prices are expressed in terms of foreign currency. Assume that PPP holds for tradable goods. Finally, assume that the foreign relative price of nontradables in terms of tradables equals unity in both periods. Compute the real exchange rate in periods 1 and 2 (c1 and s2]. {2) [15 Marks] Let us sketch a scenario like the one that took place during the Argentine debt crisis of 2001. That is, assume that, because of fears that the country will not repay its debts in period 2, foreign lenders increased the interest rate Jfrom 12 percent to 201] percent (now 5\"" = 2.00]. Compute the real exchange rate in periods 1 and 2 [s1 and 32] using this new information