2.a) (20 points) Explain in detail if the following statement is true or false: "'All else equal, a DECREASE in the terms of trade of period 2 (temporary shock) lowers consumption (C1) and the trade balance (T31) in period 1." Use equations to support your answer. Show all your calculations and explain the intuition behind your results. Hint See Chapter 4 of Schmitt-Grohe, Uribe and Woodford. copyright 2.b) (15 points) Explain if the following statement is true or false: "In the two-period model reviewed in class, the response of the Current Account to a PERMANENT positive INCOME shock is SMALLER than its response to a TEMPORARY positive INCOME shock. Use equations to support your answer. For simplicity assume a logarithmic life time utility (U=(C1)+(C2)). Show all your calculations and explain in detail the intuition behind your results. Hint: See Chapter 3 of Schmitt-Grohe, Uribe and Woodford. copyright