Exercise 3. (From Schmitt-Grohe, Uribe and Woodford 2022) Consider a two-period, small open economy populated by a large number of households with preferences captured by the following lifetime utility function In(CFCN) + In (CFCN), where Of and Of, for t = 1, 2, denote consumption of tradable and nontradable goods in period t, respectively. Households are endowed with Q] = 1 and Q? = 2 units of tradables and Q1 = Q2 = 1 unit of nontradables in periods 1 and 2. Households start period 1 with no assets or debts. The world interest rate is zero. NO 1. Calculate the equilibrium levels of the current account and the relative price of non- tradables in terms of tradables in period 1, denoted CA, and p1, respectively. 2. Suppose now that suddenly the world interest rate increases from 0 to 10 percent. Calculate the new equilibrium levels of the current account and the relative price of nontradables in terms of tradables in period 1