Reference no: EM132653738

Please explain if the following statement is true or false:

"In the two-period model reviewed in class, both the Current Account and the Trade Balance in period 1 worsen (i.e., 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. No credit without explanation. For simplicity, assume the following lifetime utility function:

U(C1,C2)= ln(C1) +β ln(C2)

Note that the subjective discounting factor is 0<β<1, which is different from the case reviewed in the textbook.