is the answer to 11 not this? 11. (6 points) Consider a two-period endowment economy model of a small open economy. In the first period (t = 1), households receive an endowment of Q1 = 20 and in the second period (t = 2), they receive an endowment of Q2 = 30. The initial external wealth W 0 = 10 W 0 =10. Households can save or borrow at the interest rate r = 0.5 r=0.5 (50% interest rate). (a) Suppose that the trade balance in the first period is TB 1 = 15 TB 1 =15. Is the country living beyond its means? To determine if the country is living beyond its means, we need to check if it is adhering to its intertemporal budget constraint. The intertemporal budget constraint can be written as: Q 1 + Q 2 1 + r + W 0 = C 1 + C 2 1 + r Q 1 + 1+r Q 2 +W 0 =C 1 + 1+r C 2 Given: Q 1 = 20 Q 1 =20 Q 2 = 30 Q 2 =30 W 0 = 10 W 0 =10 r = 0.5 r=0.5 TB 1 = 15 TB 1 =15 TB 1 = Q 1 C 1 = 15 TB 1 =Q 1 C 1 =15 C 1 = Q 1 TB 1 = 20 ( 15 ) = 35 C 1 =Q 1 TB 1 =20(15)=35 The country's consumption in the first period is 35. We need to ensure that the present value of consumption does not exceed the present value of the endowments plus initial wealth: Q 1 + Q 2 1 + r + W 0 = 20 + 30 1.5 10 = 20 + 20 10 = 30 Q 1 + 1+r Q 2 +W 0 =20+ 1.5 30 10=20+2010=30 We also need to check the present value of consumption: C 1 + C 2 1 + r = 35 + C 2 1.5 C 1