N1 Consider a two-period, small open economy with endowments on tradable and nontradable goods. The representative household has lifetime utility UC1,C1,C2,Cx2) = log C + log Cxi + b log C2 + b logCx2 Endowments are Qx = Qx2 = 5 and Qr1 = 2.5, Qr2 = 7.5. Initial NFA is zero. The world interest rate is r' = 0.04 and the discount factor is b= 1/1.04 = 0.9615. a. Compute equilibrium consumption of both goods, the trade balance, and the real exchange rate in both periods. b. Suppose that after the household chooses how much to borrow/save in period 0, the world interest rate rises to r* = 0.10. Recompute the equilibrium variables for period 2, and compute the difference between lifetime utility between this scenario and the scenario in part 1. N1 Consider a two-period, small open economy with endowments on tradable and nontradable goods. The representative household has lifetime utility UC1,C1,C2,Cx2) = log C + log Cxi + b log C2 + b logCx2 Endowments are Qx = Qx2 = 5 and Qr1 = 2.5, Qr2 = 7.5. Initial NFA is zero. The world interest rate is r' = 0.04 and the discount factor is b= 1/1.04 = 0.9615. a. Compute equilibrium consumption of both goods, the trade balance, and the real exchange rate in both periods. b. Suppose that after the household chooses how much to borrow/save in period 0, the world interest rate rises to r* = 0.10. Recompute the equilibrium variables for period 2, and compute the difference between lifetime utility between this scenario and the scenario in