Reference no: EM131900878

Consider a country of which initial wealth is zero, and its consumers prefer consumption smoothing. The value of output is initially $1 billion. The world real interest rate is 5% and the inflation rate is zero. There is an investment opportunity which costs $300 million for two periods, and after that it increases output by $40 million every year.

1. Is the investment opportunity worthwhile? Explain your reasoning.
2. Calculate consumption and trade balance if this investment opportunity is pursued.
3. Calculate net factor income account, current account and external wealth if this country pursues this investment opportunity.