Consider a two-period, small open economy with endowments on tradable and nontradable goods.The representative household has lifetime utilityU(C1,Cy1»Cr2,Cw2)= logC,, + logCy1 + b log C,, + b log Cya2Endowments are Qyi = Qv2= 5 and Q1= 2.5, Qr3 = 7.5.Initial NFA is zero. The worldinterest rate is r' = 0.04 and the discount factor is b = 1/1.04= 0.9615.a. Compute equilibrium consumption of both goods, the trade balance, and the real exchange ratein both periods.

Equilibrium in Period 1From the first-order conditions for the representative household's problem in…

Consider a two-period, small open economy with endowments on tradable and nontradable goods. The representative household has lifetime utility U(C₁₂C₁₂C₁₂₂CN₂) = log C₁₁+ log C₁₁ + b log C2 + blog C2 NI Endowments are QN₁QN₂=5 and Qr₁= 2.5, Qr₂ = 7.5. interest rate is r = 0.04 and the discount factor is b = 1/1.04 = 0.9615. Initial NFA is zero. The world a. Compute equilibrium consumption of both goods, the trade balance, and the real exchange rate in both periods.

Consider a two-period, small open economy with endowments on tradable and nontradable goods. The representative household has lifetime utility U(C₁₂C₁₂C₁₂₂CN₂) = log C₁₁+ log C₁₁ + b log C2 + blog C2 NI Endowments are QN₁QN₂=5 and Qr₁= 2.5, Qr₂ = 7.5. interest rate is r = 0.04 and the discount factor is b = 1/1.04 = 0.9615. Initial NFA is zero. The world a. Compute equilibrium consumption of both goods, the trade balance, and the real exchange rate in both periods.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.8P

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