Question 1 (Gains from Globalisation) Consider an emerging market economy that recently opened itself to international capital markets through financial liberalisation. It is a small open economy. The long run budget constraint holds. The following table provides estimates of the economy's output, growth, labour and capital shares. GDP (Q) per year 100 billion USD -10 billion USD 1(a) Derive the long run budget constraint and compute the present value of trade balances for this emerging market economy. What must be true of the trade balance? (3 points) 1(b) Assume perfect consumption smoothing holds in this economy. Compute the level of consumption that prevails. (5 points) 1(c) Assume now that there is a new public investment programme in period 0 that is forecasted to increase GDP by 5 % per year starting in year 1. Compute the maximum investment that can be undertaken and make consumers better off. Provide an intuition for your answer. (5 points) 1(d) Over the last decades, there has been a secular (persistent) decline in real interest rates. How might this impact your answer to (c)? (2 points)