Consider Gaaldine, a similarly fictional country which has no plans to cut off the rest of the world. Their utility is t=0tlogct where =1/1.04. The interest rate is 4 percent, so 1+r=1.04. Output is given by yt=1.02 i.e. initial output is 1 , and it grows at 2 percent per year. The initial net international investment position of Gaaldine is 0 . Their per-period budget constraint is at+1=(1+r)at+(1+r)xt where yt=xt+ct They must obey the transversaility condition limt(1+r)2al=0. 2 This name is borrowed from Emily and Anne Bronte. 2 1. What is the present discounted value of output of Gaaldine? 2. What is the growth rate of consumption of Gaaldine? (Hint: solve for the Euler equation) 3. What is the present discounted value of consumption, as a multiple of the present discounted value of c0 ? 4. Solve for c0. 5. What is the current account in periods t=0,1,2