1. (Endowment shocks) Consider a twoperiod lived household, whose preferences for consumption are described by the lifetime utility func tion mm + lng where 01 and G2 denote consumption in periods 1 and 2, rmpectively, and ,6 is the subjective discount factor. {a} Do thme 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 nancial wealth equal to [1 + rn, where EU is an inherited stock of bonds and n; is the interest rate on assets held between periods El and 1. In addition, the household receives endowments of goods in the amounts Q1 and Q; in periods 1 and 2, respectively. In period 1, the household can borrow or lend at the interest rate r1 :2 I] via a bond denoted E]. Find the optimal levels of consumption in periods 1 and 2 as functions of the household's lifetime wealth, 1" = [1+ rn}B + Q1 + Qgl + m} and the interest rate r1. (c) Find the responses of consumption in period 1, $01, the trade balance in period 1, dTEl, and the current account in period 1, $0111, to a temporary increase in the endowment, Qi L's G and QE = I]. Provide intuition. [d] Find the responses of consumption in period 1, drill, the trade balance in period 1, dTHl, and the current account in period 1, $0211, to a permanent increase in the endowment, $11,211 = so; 3.:- . Provide intuition. (e) Suppose [.23 increases, Qg is I], while (.21 is unchanged, 311191 2 12. Find the responses of consumption in period 1, drill, the trade balance in period 1, $2131, and the current account in period 1, $0211. Provide intuition