Consider a two-period, small open economy populated by identical households with preferences given by

lnC1 +lnC2,

where C1 and C2 denote consumption in periods 1 and 2, respectively. Households are endowed with Q1 = 5 units of goods in period 1 and Q2 = 10 units in period 2. In period 1, households can borrow or lend at the interest rate i. Let D1 denote the amount of debt of the household in period 1. Assume that the initial level of debt is zero, D0 = 0. The world interest rate, denoted i, is 10 percent.

1. Calculate the equilibrium current account in period 1 under free capital mobility.