In this question assume all dollar units are real dollars in billions, so $300 means $300 billion. It is year 0. Argentina thinks it can find $300 of domestic investment projects with anMPK of 10%(each $1 invested pays off $0.10 in every later year). Argentinainvests $100in year 0 by borrowing from the rest of the world at a world real interest rater* of 5%. There is no further borrowing or investment after this.

Use the following assumptions: Assume initial external wealthW-1=-20. AssumeG=0always; and assumeI=0except in year 0. AssumeNUT = KA = 0and that there is no net labor income.

The projects start to pay off in year 1 and continue to pay off all years thereafter. Interest is paid in perpetuity, in year 1 and every year thereafter. In addition, assume that if the projects are not done, thenGDP = Q = $500in all years, so that:PV(Q) = 500 + 500/0.05 = 10,500.

1. Should Argentina fund the $100 worth of projects?
2. From this point forward, assume the projects totaling $100 are funded and completed in year 0. If the MPK is 10%, then the total payoff from the projects in future years is (____)
3. Assume the additional output computed in the previous question is added to the $500 of GDP in all years starting in year 1. In year 0, annual output is (___) while in years 1 and on annual output is(_____)
4. At year 0, the new PV(Q) is (_____) Thus the LRBC tells us that the new PV(C) in dollars is (______)
5. Assume that Argentina is smoothing consumption. The new level of C in all years is(_____)
6. For the year the investment projects go ahead, year 0, explain Argentina's balance of payments as follows (answer accuracy = 2 decimals): State the levels of

(1) CA

(2) TB

(3) NFIA

(4) FA

(5) W

What happens in later years? State the levels in year 1 and every later year (answer accuracy = 2 decimals) of:

(1) CA

(2) TB

(3) NFIA

(4) FA

(5) W