The parameter is known as the subjective discount factor. It measures the consumer's degree of impatience in the sense that the smaller is f} , the higher is the weight the consumer assigns to present consumption relative to future consumption. Assume that f)' = 1/1.1. The representative household has initial net foreign wealth of (1 + rnjB' = 11 with m = [3.11 and is endowed with Q1 = 5 units of goods in period 1 and Q2 = 10 units in period 2. The world interest rate paid on assets held from period 1 to period 2, 1m, equals 10% (i.e., H = 0.1) and there is free international capital mobility. a) Calculate the equilibrium levels of consumption in period 1, Cl ,consumption in period 2, 02, the trade balance in period 1, T31, and the current accmmt balance in period 1, CA1. {10 marks) Maximizing utility subject to the budget constraint leads to the usual tangency condition: VT? JET ={1+r*) :1 So, we have 01 =02 Plug that in the budget constraint and get: 01 =02 = 7.9