he Current Account in a 2-period Model Fictional country Gondal2 is choosing to borrow and lend with the rest of the world. It is small, so its actions have no effect on the world interest rate, which is r = 0.21 between period 1 and 2. In two years, Gondal plans to cut off contact with the rest of the world, and so all debts have to be repaid in period 2. Gondal has utility U = 1 1 c 1 1 1 1 c 1 2 where = 2 and = 0.81. The growth rate of GDP in Gondal is 10 percent, i.e. y2 = 1.1y1. Denote the current account of Gondal in each period by x1 and x2. 1. What is Gondal's budget constraint? 2. Derive the Euler equation that relates the marginal utility of consumption in period 1 to the marginal utility of consumption in period 2. 3. Does Gondal consume more in period 1 or 2? 4. How much does Gondal consume in each period, as a percentage of output? 5. What is the current account in each period, as a percent of GDP? Is it a deficit or