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Two open endowment economies (4: denotes foreign}; Perfect foresight; Discrete time t = {0,1, 2, ...}; Consumption: C: 2:- ; Goods prices: Pt, P: I} 0; World income endowment: Y I? 0; World real interest rate: in: 2:- 0; Home lifetime utility: 23;] t Inll]; Foreign lifetime utility: 23:0 :3\" ln{C:]; Discount factors: I] 1 (i.e. expected future price inflation and/ or current price deflation).5. Suppose nowr that there are no real bonds and the only assets that are traded are home and foreign nominal bonds. lConsider a reduction in the debt limit 3" to BE and assume that the transition from one steady state to the other takes only one period. Determine the shortrun value of home, foreign consumption and the world interest rate and compare your results with the one obtained in part [3) I If D: and D: denote the stock of nominal bonds at home and abroadI respectively, then the nominal borrowing constraints are: (10} i lf 3" _3. B', the nominal borrowing constraints become: {11} . Home budget constraint with nominal bonds: (12) . As before, the global bond market clearing condition requires (13) since foreign economy is a borrower with a binding borrowing constraint.In transition, from the old to the new steady state, the budget constraint of home economy is given by (14) . Using the Euler equation again determines the real interest rate: (15)