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Explain if the following statement is true or false: In the two-period model reviewed in class, both the Current Account and the Trade Balance in
Explain if the following statement is true or false: "In the two-period model reviewed in class, both the Current Account and the Trade Balance in period 1 improve (i.e., increase) with an ANTICIPATED increase in the endowment of period two (4Q, =0 and AQ2>0)." For simplicity, assume the following lifetime utility function: U(C1, C2) = In(C1) + Bin(C2) Use equations of the optimal allocation of consumption in periods 1 and 2, the trade balance in period 1, and the current account in period 1 to support your answer. No credit without explanation. Hint: See Chapter 3. Note that the subjective discounting factor is OB
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