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please answer asap To answer this problem assume a two-period economy with the following logarithmic utility function: U(Cl, 02) = [111(01) + ln(C'2)] where C1

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To answer this problem assume a two-period economy with the following logarithmic utility function: U(Cl, 02) = [111(01) + ln(C'2)] where C1 and C2 are the consumption in the first and second periods, respectively. Households are endowed with Q1 and Q2 units of consumption goods in periods 1 and 2 and can borrow or lend at the world interest rate, r1=r*. Every household starts period 1 with B; at 0. Households can purchase bonds, 8*, which pay the interest rate r1. The terms of trade in periods 1 and 2 are TT1 and TT2 , respectively. Then in this economy, the country adjust to ____________________ changes in the terms of trade by mostly changing ____________________ and the country adjusts to ____________________ changes in the terms of trade by mostly changing ____________________ . a) temporary; consumption; permanent; the current account b) temporary; the current account; permanent; consumption

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