How much should it borrow in period one

Reference no: EM131479918

Question: Assume that a country produces an output Q of 50 every year. The world interest rate is 10%. Consumption C is 50 every year, and I = G = 0. There is an unexpected war in year 0, which costs 11 units and is predicted to last one year. If the country desires to smooth consumption, how much should it borrow in period 0? What will the new level of consumption be from then on?

- The country wakes up in year 1 and discovers that the war is still going on and will eat up another 11 units of expenditure in year 1. If the country still desires to smooth consumption looking forward from year 1, how much should it borrow in period 1? What will the new level of consumption be from then on?

Reference no: EM131479918

Questions Cloud

Explain the gaps in living standards across countries : This question continues from the previous problem, focusing on how risk premiums explain the gaps in living standards across countries.

How many books are sold each month by the publisher : How many books are sold each month by the publisher? This is important because quantity discounts are available from the publisher.

How does that employer maintain compliance with that statute : Apply that law to a business situation created by that employer. How does (or did) that employer maintain compliance with that statute?

How much should it borrow in period one : Assume that a country produces an output Q of 50 every year. The world interest rate is 10%. Consumption C is 50 every year, and I = G = 0.

Describe why each site you used is credible and accurate : why each site you used is credible and accurate. NOTE: If you aren't sure how to do this, read the Learn content for guidance or discuss with your instructor.

What are common characteristics your chosen religion shares : What are common characteristics your chosen religion shares with the others - How is this religion responding to challenges

Does diversification eliminate consumption risk in each case : Consider a world of two countries: Highland (H) and Lowland (L). Each country has an average output of 9 and desires to smooth consumption.

International labor rights : Assignment: International Labor Rights - Discuss whether or not workers are exploited in manufacturing of US imports.

User Account

All Pages