Consider the Inter-temporal Model with twotime periods, t=0 and t=1.Home is a small open economy that canborrow and lend in the first period at theworld real interest rate of 5%.In the first period, output is Yo = 100 and inthe second period Y1 = 100. The countrywants to smooth consumption as much aspossible.The country ended period t=-1 with positiveexternal assets, W-1 = 50.What is the value of the current account inperiod O and period 1?Also, what is the value of net factor incomefrom abroad in period 1?What is the value of the trade balance inperiod 0 and period 1?

The concept of "intеr-tеmporal modеl" can be described as a class of еconomic modеls that analyzе…

Consider the Inter-temporal Model with two time periods, t=0 and t=1. Home is a small open economy that can borrow and lend in the first period at the world real interest rate of 5%. In the first period, output is Y = 100 and in the second period Y₁ = 100. The country wants to smooth consumption as much as possible.

Consider the Inter-temporal Model with two time periods, t=0 and t=1. Home is a small open economy that can borrow and lend in the first period at the world real interest rate of 5%. In the first period, output is Y = 100 and in the second period Y₁ = 100. The country wants to smooth consumption as much as possible.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Consider the Inter-temporal Model with two
time periods, t=0 and t=1.
Home is a small open economy that can
borrow and lend in the first period at the
world real interest rate of 5%.
In the first period, output is Yo = 100 and in
the second period Y1 = 100. The country
wants to smooth consumption as much as
possible.
The country ended period t=-1 with positive
external assets, W-1 = 50.
What is the value of the current account in
period O and period 1?
Also, what is the value of net factor income
from abroad in period 1?
What is the value of the trade balance in
period 0 and period 1?

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Step 1: Define inter-temporal model

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Step 2: Calculate current account for period 0 & 1

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Step 3: Calculate NFIA

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Step 4: Calculate Trade balance

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