The Current Account in a 2-period Model Fictional country Gondal² is choosing to borrow and lend with the rest of the world. It is small, so its actions have no effect on the world interest rate, which is r = 0.21 between period 1 and 2. In two years, Gondal plans to cut off contact with the rest of the world, and so all debts have to be repaid in period 2. Gondal has utility +B: 1 where = 2 and 3 = 0.81. The growth rate of GDP in Gondal is 10 percent, i.e. /2 = 1.1. Denote the current account of Gondal in each period by ₁ and 22. 1. What is Gondal's budget constraint?
The Current Account in a 2-period Model Fictional country Gondal² is choosing to borrow and lend with the rest of the world. It is small, so its actions have no effect on the world interest rate, which is r = 0.21 between period 1 and 2. In two years, Gondal plans to cut off contact with the rest of the world, and so all debts have to be repaid in period 2. Gondal has utility +B: 1 where = 2 and 3 = 0.81. The growth rate of GDP in Gondal is 10 percent, i.e. /2 = 1.1. Denote the current account of Gondal in each period by ₁ and 22. 1. What is Gondal's budget constraint?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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