Notes: For preparing the Project, follow the procedure distributed in the class. In all calculations, clearly and explicitly indicate units and any required unit conversions. Write your statements and assumptions them clearly Q.1 Q2 Q2 Q1-1 Q1-1 (a) The diagrams above illustrate two economies with identical investment opportunities and identical trade balances. What are the differences between the economies in terms of (i) investment, (ii) composition of the trade balance, and (iii) welfare? (b) How might we distinguish trade deficits due to (i) current consumption booms and (ii) high investment opportunities? The more general equation for the current account is: CA= Q+rB-1*-C-1 (8) We have examined the effects of high current consumption and investment above, but a third possible reason for current account deficits not readily illustrated in the two period framework is that rB1-1* is a large negative number. Give some examples of countries for which this is the case. Limitations on foreign borrowing and lending (Topic not covered in lectures) Sachs and Larrain s.6.5 Notes: For preparing the Project, follow the procedure distributed in the class. In all calculations, clearly and explicitly indicate units and any required unit conversions. Write your statements and assumptions them clearly Q.1 Q2 Q2 Q1-1 Q1-1 (a) The diagrams above illustrate two economies with identical investment opportunities and identical trade balances. What are the differences between the economies in terms of (i) investment, (ii) composition of the trade balance, and (iii) welfare? (b) How might we distinguish trade deficits due to (i) current consumption booms and (ii) high investment opportunities? The more general equation for the current account is: CA= Q+rB-1*-C-1 (8) We have examined the effects of high current consumption and investment above, but a third possible reason for current account deficits not readily illustrated in the two period framework is that rB1-1* is a large negative number. Give some examples of countries for which this is the case. Limitations on foreign borrowing and lending (Topic not covered in lectures) Sachs and Larrain s.6.5