Logarithmic utility function

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Reference no: EM132661400

Please explain if the following statement is true or false: In the two-country period model, the response of the Current Account to a temporary but positive Terms of Trade shock is SMALLER than its response to a permanent but positive Terms of Trade shock.

Use equations to support your answer. For simplicity assume a logarithmic utility function

U=ln(C_1) + ln(C_2).

Reference no: EM132661400

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