1. (Endowment shocks) Consider a two-period lived houschold, whose preferences for consumption arc described by the lifetime utility func- tion InCi + BlnC2 where C, and C, denote consumption in periods 1 and 2, respectively, and B is the subjective discount factor. (a) Do these preferences give rise to indifference curves that are down- ward sloping and convex? Show your work. (b) Suppose that the household starts period 1 with financial wealth equal to (1 + ro) Bo, where Bo is an inherited stock of bonds and ro is the interest rate on assets held between periods 0 and 1. In addition, the household receives endowments of goods in the amounts Q, and Q2 in periods 1 and 2, respectively. In period 1, the household can borrow or lend at the interest rate ri > 0 via a bond denoted B.. Find the optimal levels of consumption in periods 1 and 2 as functions of the houschold's lifetime wealth, Y = (1+ro)B+Q. +Q2/(1+r) and the interest rate ri. (c) Find the responses of consumption in period 1, AC, the trade balance in period 1, ATB1, and the current account in period 1, ACA,, to a temporary increase in the endowment, AQ. > 0 and AQ2 = 0. Provide intuition. (d) Find the responses of consumption in period 1, AC, the trade balance in period 1, ATB, and the current account in period 1, ACA,, to a permanent increase in the endowment, AQ1 = AQ2 > 0. Provide intuition. (e) Suppose Q2 increases, AQ2 > 0, while Q. is unchanged, AQ, = 0. Find the responses of consumption in period 1, AC, the trade balance in period 1, ATB, and the current account in period 1, ACA,. Provide intuition