macroeconomics

all questions are in the following pictures

2. Consider a two-period small open economy endowment economy populated by a large number of households with preferences given by the lifetime utility function 011/2021/2 where (3'1 and 0'2 denote consumption of food in periods 1 and 2. Suppose that households receive exogenous endowments of copper given by Q1 = Q2 = 10 in periods 1 and 2. The 1 terms of trade in periods 1 and 2 are TTl = TT2 = 1. Every household enters period 1 with no assets or liabilities from the past, so that BS = 0. Finally, suppose that the country enjoys free capital mobility and that the world interest rate on assets held between periods 1 and 2 is 'r'\" = 5 per cent. (a) Compute the equilibrium levels of consumption, the trade balance and the current account in periods 1 and 2. (b) Assume now that the terms of trade in period 2 are expected to increase by 50 per cent. Calculate the effect of this anticipated terms of trade improvement on consumption, the trade balance and the current account in periods 1 and 2. Provide intuition (c) Relate your ndings to the experience of Chile in the early 20005 (discussed in class and Chapter 4 SUW). In particular, explain why the earlier results make the behavior of the Chilean current account over the period 2003-2007 puzzling under the naive view that in the early 20005 Chileans had perfect foresight about the future path of the copper price. (d) Imagine you are Govenor Stevens. You have given the speech \"The Resources Boom\" and aware of the Chilean experience during the 20003. You are concerned about when the resources boom might end. Briey comment on whether you the current account data for Australia are consistent with the terms of trade rise being permanent or tran- sitory over 2000-2011. [The current account data are plotted in Debelle 2019.]