The questions are given below. the question is complete

Consider the following economy.

Time is discrete and runs forever, t=0,1,2,.

The economy is populated by two types of agents (a measure one of each): farmers and workers.

Farmers own a piece of land that pays a stochastic income y, every period.. We assume that y, is i.i.d. across farmers and time, and that y, N(,02). Farmers use all their time working their land. Their preferences are given by (21) (22) u(c) = exp(-7c) for some y> 0. For simplicity, we assume that consumption of farmers can be negative, that is c E R. Moreover, farmers can save (or borrow if negative) in a non-state contingent and non-defaultable asset a, which has a rate of return r. Farmers face the following "No-Ponzi" condition on assets a >0. Moreover, farmers can produce and hold capital, k, which is rented to the representative firm in competitive markets (1 unit of final consumption good produces I unit of capital). Let be the rental rate of capital and d the depreciation rate. Unlike farmers, workers don't own land, and they use their available time to work in the representative firm. Assume each worker is endowed with one unit of time. They cannot trade the asset a, but they can produce and hold capital, k (with the same technology as farmers). Their per-period utility is given by u(e), with u'(c) > 0, u"(c)

Part A 1. (a) (b) (c) For a single country, derive a sufcient condition to obtain Pareto gains under partial reform of tariffs, comparing one tariff vector t0 to another t1, while using lump sum transfers to compensate consumers. Now consider a group of countries i=1,. . .,C, forming a customs union. State a sufficient condition (from Kemp and Wan) for each of these countries to gain 'om the customs union, and for the rest of the world to be no worse off. New show how this condition meets the criterion that you derived in part (a). Suppose instead that the countries i=1,. . .,C, form a ea trade area. What is the difference between a free trade area and a customs union? Now state a sufcient condition (from Krishna and Panagariya) for each of these countries to gain from the ne trade area, and for the rest of the world to be no worse o'. Show how this sufcient condition meets the criterion that you derived in part (a). \f(c) Now suppose that instead of the VER, there is an ad valor-em tariff applied to each variety sold by the foreign rm. Again show how the prot-maximization problem is re-stated when this tariff is introduced, and derive the new rst-order condition for the optimal choice of characteristics a, . Then, show the effect of the tariff on the characteristics chosen by the rm, as compared to part (a). ME Question 1 {a} Outline the debate among the advocates of the gold standard, of the Bretton Woods pegged exchange rate regime, and of the oating exchange rate regime. {b} Evaluate these three positions in light of the post- IQTS experiences of North America, western Europe and Japan. Do the experiences suggest that the formation of the European littlonetar}t Union was the logical outcome? EMon 2 Consider the perfect capital mobility case, i.e. domestic bonds and foreign bonds are perfect substitutes, with r\" = 10 percent per year. The government now amiouncec that it will keep the exchange rate at the current value for one year but is free to change it after that. Say that the market now believes that there is a 50 percent chance of a 40 percent devaluation immediately after one year. and a 50 percent chance that the government will implement a currency board to keep the exchange rate unchanged. {a} Analyse the short-mn consequences of the above situation. (b) What will happen to the capital account balance? (c) WI-rat is the implication for stabilization policy that is committed to keeping output at the present level