Illustrate what will level of consumption and trade balance

Assignment Help Business Economics

Reference no: EM1371096

Q. Assume that a country produces an output Q of 50 every year. World interest rate is 10%. Consumption C is 50 every year and I = G = 0. re is an unexpected war in year 0, so output falls to 39 and is n expected to return to 50 in every future year.

If country desires to smooth consumption, explain how much it should borrow in period 0? Illustrate what will level of consumption and trade balance is from then on?

If shock were permanent Explain how would this change?

Why would a country desire to smooth consumption?

Reference no: EM1371096

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