Please explain why this statement is true or false: "In the two-period model, both the Current...

Please explain why this statement is true or false:

"In the two-period model, both the Current Account and the Trade Balance in period one decrease with an anticipated increase in the endowment of period two (ΔQ1=0 and ΔQ2>0)''

Use equations of 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 your answer.

Assume the following lifetime utility function: U(C1,C2)= ln(C1) +β ln(C2) and the subjective discounting factor is 0<β<1

No credit without explanation.

Expert Solution

Rahul Sunny answered 1 year ago

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