Part A.

3 An Anticipated Output Shock [30 points] Consider a two-period small open endowment economy populated by a large number of households with preferences described by the lifetime utility function: 11 U = C 10 C 11 (1) Suppose that households receive exogenous endowments of goods given by Q1 = Q2 = 10 in periods 1 and 2, respectively. Every household enters period 1 with some debt, denoted B0, inherited from the past. Let B0 = 5. The interest rate on these liabilities, denoted r0, is 20 percent. Finally, suppose that the country enjoys free capital mobility and that the world interest rate on assets held between periods 1 and 2, denoted r, is 10 percent.

a (14 points) Compute the equilibrium levels of consumption, the trade balance, and the current account in periods 1 and 2. Do not forget to show step by step your algebraic calculations. Explain in detail your reasoning. No credit without an explanation.

b (16 points) Assume now that the endowment in period 2 is expected to increase from 10 to 15. Calculate the effect of this anticipated output increase on consumption, the trade balance, and the current account in both periods. Provide intuition. Do not forget to show step by step your algebraic calculations. Explain

Part B.

The coronavirus pandemic has been unprecedented in its impact, leaving no aspect of life unaffected from its arrival in late 2019.

From day-to-day impacts on work, school, social gatherings, and travel, to larger shockwaves to the world's economy and health care systems, COVID-19 is a once-in-a-lifetime crisis on the global stage.

And with such a large crisis comes even larger, albeit, difficult questions to answer. Questions that tug at the ethical dilemmas the crisis has brought to the forefront.

For health care workers caring for sick coronavirus patients: How do we allocate scarce resources?

For government leaders pushing for a vaccine: Who gets the first shot when one becomes available?

For businesses who are facing falling revenues: Will shareholders continue to be their No. 1 focus, post-COVID-19?

These are just a few of the many ethical challenges the world needs to wrestle with now and in the near future, according to Wonyong Oh, Lee Professor of Strategy at University of Nevada, Las Vegas's (UNLV) Lee Business School.

Last month, the hospital system in Italy was overwhelmed with coronavirus cases. As the country begins to turn a positive corner, what are some lessons to be learned from Italy on how to handle questions of medical ethics?

In countries such as Italy, China, the United Kingdom, and Spain, frontline medical staffs have faced a dilemma throughout the COVID-19 crisis: Which patients should be treated first when resources are stretched to the limit? Should you save as many patients as possible, or save patients with the most urgent need?

From an ethical standpoint, if you believe in the ethics of outcome (utilitarianism), or aim to save the largest number of lives, you should focus on patients who have greater chances of therapeutic success. In contrast, if you believe in the ethics of morality (deontology), you should treat patients who are at risk, like elderly patients who are in serious conditions.

It's likely that no one can answer this question. The important lesson is that we shouldn't just leave this decision to the frontline health workers. Guidelines can be provided to ease their moral burden, so that they can better focus on treatment. For example, both Italy and the United Kingdom offer guidelines for their health care professionals.

Scientists around the world are working quickly to develop vaccines for COVID-19. When they are successful, and a vaccine becomes available, who should get the first shot?

We've seen this question in the movie "Contagion", but it could actually be a question we have to answer in a few months. This question poses an ethical question similar to questions of who will be treated first. Will the vaccine first go to more vulnerable people or people with high social utility (e.g., medical professionals)? Vaccine development is important, but, once vaccines are available, the distribution of a vaccine is also an important ethical question.

Think about how the masks, gloves and diagnostic kits are distributed these days. Simply, the distribution is determined by who pays the highest amount. This shows that the supply and demand curve cannot solve the distribution problem. If vaccines are also distributed in a similar way, poorer countries will unfortunately get the vaccines last.

Some richer countries are likely to preempt and stock up on vaccines for the protection of their own citizens. They're able to do so because there is no regulatory force that mandates countries that develop vaccines to share those vaccines with other countries. That's why Bill Gates argued recently for a worldwide approach to fighting the disease, and that the vaccine should be a "global public good".

What are some ethical questions that businesses are wrestling with in light of COVID-19?

Let's think about one controversial example. Real-time personal location information to track and manage the path of infection has been tried all over the world, especially actively in Asian countries like China, Korea, and Hong Kong. IT companies can track location information using smartphones to prevent virus spread. This raises ethical and legal issues surrounding access to personal information.

If you follow utilitarian ethics, tracking this kind of personal information can be allowed with the "maximum benefits for the greatest number" principle. It's for keeping society safe from infection by sacrificing personal privacy. It seems that, recently, the views on tracking personal information in the U.S. and Europe began to change. In a few European countries, telecommunication companies began to use mobile phone data to fight COVID-19. In the U.S., Apple and Google are working together to track COVID-19 with Bluetooth. IT companies can help governments reduce the spread of the virus with their technologies. At the same time, high-tech companies need to balance that with protecting individual privacy, which is a new challenge.

Everything about the coronavirus pandemic, however, is unprecedented. The reality is that the virus threatens even ordinary freedoms, like the freedom of movement, with stay-at-home orders.

Will the pandemic make some businesses rethink the fundamental aspect of corporation?

Let's talk about one concept efficiency. For decades, U.S. corporations and business schools have emphasized the importance of efficiency. Think about Germany. COVID-19 has hit the country hard, but the fatality rate is remarkably low at around 1.6 percent as I write this. By comparison, that rate is 12 percent in Italy and about 10 percent in Spain, France, and the U.K.

One of the reasons is that Germany has more hospital doctors, hospital beds, and intensive care units than other comparable European countries. For example, Germany has 34 intensive care beds - equipped with ventilators - per 100,000 people, whereas it's only 12 in Italy. Based on the traditional business paradigm before this pandemic, that's a sign of inefficiency, or failure to make the best use of resources. But now, no one will argue that Italy has better 'health care efficiency' than Germany.

After this pandemic, how will the roles of corporation and government change? Do you expect more corporate social responsibility?

U.S. business schools have taught the shareholder primacy model, which emphasizes the maximization of shareholder value. But this will change.

We are already seeing some examples. Facebook and Micron are giving $1,000 to each of their employees to support them during the COVID-19 outbreak. Also, car insurance companies are offering customers refunds and credits. Apparel companies began producing protective gear. Microsoft is collaborating with Johns Hopkins' coronavirus tracker. They don't have to, but they did. If they didn't, it would financially profit Microsoft shareholders only. These companies recognize the importance of treating employees, customers, and society responsibly. We may see more companies shifting their mindsets from 'shareholder capitalism' to 'stakeholder capitalism.'

However, we cannot completely rely on a few good corporate citizens. Over the past few decades, vaccine development by pharmaceutical companies has decreased dramatically. Pharmaceutical companies have also reduced their investment in making new ones. This is in part because research, development, and testing are costly and involve high risk of failure. Also, the market for vaccines is smaller compared to other drugs, and there is no market once the pandemic is over. To put it simply, it's not a profitable endeavor for pharmaceutical companies, and thus they have no financial incentive to develop vaccines. How can we deal with this problem? Since market capitalism cannot solve it, governments need to step in.

1. Compose a one to page summary of the key points.

2. Do you agree with these points?

3. Provide at least one additional ethical question/topic, either local, state, national or global, which you consider to be important to consider.