Question: true or false (with explanation please : In the two-period model reviewed in class, both theCurrent Account and the Trade Balance inperiod 1 worsen(i.e.,

true or false (with explanation please : "In the two-period model reviewed in class, both theCurrent Account and the Trade Balance inperiod 1 worsen(i.e., decrease) with ananticipatedincrease in the endowment ofperiod two (Q1=0 and Q2>0)''

I know I have to use theequationsof the optimal allocation of consumption in periods 1 and 2, the trade balance in period 1 and the current account in period 1 to support the answer.

& for simplicity, assume the following lifetime utility function:

U(C1,C2)= ln(C1) + ln(C2)

Note that the subjective discounting factor is 0<<1!

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!