Fictional country Gondal2 is choosing to borrow and lend with the rest of the world. It...
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Fictional country Gondal2 is choosing to borrow and lend with the rest of the world. It is small, so its actions have no effect on the world interest rate, which is r = 0.21 between period 1 and 2. In two years, Gondal plans to cut off contact with the rest of the world, and so all debts have to be repaid in period 2. Gondal has utility U = 1 1-7 1 1 7 -c₁+B= where y2 and 3 = 0.81. The growth rate of GDP in Gondal is 10 percent, i.e. y₂ = 1.1y₁. Denote the current account of Gondal in each period by ₁ and 2₂. 1. What is Gondal's budget constraint? 2. Derive the Euler equation that relates the marginal utility of consumption in period 1 to the marginal utility of consumption in period 2. 3. Does Gondal consume more in period 1 or 2? 4. How much does Gondal consume in each period, as a percentage of output? 5. What is the current account in each period, as a percent of GDP? Is it a deficit or a surplus? Fictional country Gondal2 is choosing to borrow and lend with the rest of the world. It is small, so its actions have no effect on the world interest rate, which is r = 0.21 between period 1 and 2. In two years, Gondal plans to cut off contact with the rest of the world, and so all debts have to be repaid in period 2. Gondal has utility U = 1 1-7 1 1 7 -c₁+B= where y2 and 3 = 0.81. The growth rate of GDP in Gondal is 10 percent, i.e. y₂ = 1.1y₁. Denote the current account of Gondal in each period by ₁ and 2₂. 1. What is Gondal's budget constraint? 2. Derive the Euler equation that relates the marginal utility of consumption in period 1 to the marginal utility of consumption in period 2. 3. Does Gondal consume more in period 1 or 2? 4. How much does Gondal consume in each period, as a percentage of output? 5. What is the current account in each period, as a percent of GDP? Is it a deficit or a surplus?
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1 Gondals budget constraint is c1 a1 y1 1ra1 c2 1ra1 ... View the full answer
Related Book For
Applied Calculus
ISBN: 9781119275565
6th Edition
Authors: Deborah Hughes Hallett, Patti Frazer Lock, Andrew M. Gleason, Daniel E. Flath, Sheldon P. Gordon, David O. Lomen, David Lovelock, William G. McCallum,
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