Question: PLEASE HELP WITH THIS ASSIGNMENT 3 The Subjective Discounting Factor in a Two-period Endownment Economy (30 points] Suppose the household chooses C, and C2 to

PLEASE HELP WITH THIS ASSIGNMENT

3 The Subjective Discounting Factor in a Two-period Endownment Economy (30 points] Suppose the household chooses C, and C2 to solve the following maximization program given By, ro, ri, Q1 and Q2. argmarci.Ca In(C1) + 8In(C2) (1) subject to the IBC Ci+ C2 - (1 + ro)Bj + Q1+ 1 + ri where Y is the lifetime Income (Wealth). a Calculate the optimal allocation of C, and C2. [6 points] b Now calculate the equilibrium levels of the trade balance and current account in period 1. [6 points] c Explain why a lower discounting factor S affects the optimal allocation of consumption (C1, Cz) and the trade balance and the current account in period 1. [10 points] d Explain what would happen to the optimal allocation of consumption if = . Do not forget to show your work and provide the intuition behind your results. (8 points)

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