Answer True or False. Briefly explain your answer. No credit without explanation. [20 points]

Suppose that there is an asymmetric permanent shock to the endowments in a two-period economy. In particular, assume that the new endowments are equal to Q'1 = Q1 + and Q'2 = Q2 + (1 + r), where Q1 and Q2 are the endowments before the shock. Assume that < 0, r*> 0, and that B*0 / 0. Use the logarithmic model of chapter 3 (U = ln(C1) + ln(C2)) to explain if the following statement is true or false:

With this asymmetric permanent shock to the endowments, the change in consumption in period-1 is equal to , the change in consumption in period 2 is equal to (1+r), and the change in the trade balance in the first period AND the change current account in the first period are both equal to zero."

Do not forget to show step by step your algebraic calculations and a graph to support your answer. Explain in detail your reasoning. No credit without an explanation.