1. (Endowment shocks) Consider a twoperiod lived household, whose preferences for consumption are described by the lifetime utility func- tion lnCl + lan where C1 and 02 denote consumption in periods 1 and 2, respectively, and is the subjective discount factor. (a) (b) (d) ' Do these preferences give rise to indierence curves that are down- ward sloping and convex? Show your work Suppose that the household starts period 1 with nancial wealth equal to (1 + T0)B0, where BO is an inherited stock of bonds and To is the interest rate on assets held between periods 0 and 14 In addition, the household receives endowments of goods in the amounts Q1 and Q2 in periods 1 and 2, respectively. In period 1, the household can borrow 0r lend at the interest rate n > 0 via a bond denoted B1. Find the optimal levels of consumption in periods 1 and 2 as functions of the household's lifetime wealth, V = (1+ T0)BO + Q1 + Q2/(1 + T1) and the interest rate r1. jind the responses of consumption in period 1, A01, the trade Dalance in period 1, ATBL, and the current account in period 11 A0141, to a temporary increase in the endowment, AQl > 0 and AQ2 : 0' Provide intuitionl rind the responses of consumption in period 1, A01, the trade Dalance in period 1, ATBI, and the current account in period 1, ACA1, to a permanent increase in the endowment, AQ1 : AQQ > 0' Provide intuition, Suppose Q2 increases, AQ2 > 0, while Q1 is unchanged, AQI : 04 Find the responses of consumption in period 1, A01, the trade balance in period 1, ATBI, and the current account in period 1, ACAL Provide intuition