Consider the case of a home country where under normal conditions the level of GDP is Q=1000 and consumption C=1000 and I=G=0. Initially, these conditions are expected to last forever.

Consider the case of a home country where under normal conditions the level of GDP is Q=1000 and consumption C=1DOD and I=G=0. Initially, these conditions are expected to last forever. The world interest rate is r*=0.05=5%. Assume it is now time 0, and that external wealth at the end of all previous period was zero. Now suppose conditions have changed, and the country has learned of a negative output shock at time t=0. This shock is expected to last one year, and will lead to an output drop of 210 units. That is. GDP at time 0 falls to Q0 = 790, then returns to 1000. At time 0, under this scenario [1]: What is the present value of output? PWQ] = What is the present value of consumption? PWC] = Assume forward-looking agents desire smooth consumption over time. Compute the new planned levels of consumption at t = 0 and 1 under this scenario. [1] Compute the trade balance, NFIA. current account. and wealth at t = 0 and 1 under this scenario. [1] TBn= NFIA0= CAn= Wu= TB1= NFIA1= CA1= W1=