Logarithmic preferences and consumption

Homework 2: ec 5660:

1. In book, equation after (3.9), it shows that under logarithmic preferences, consumption in first period is half of household wealth (discounted), please show that in steps.

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2. Assume that we do not know the preferences of a country, and say that it is a country with high debt. If world interest rises in this open economy with no capital controls, what do we expect in current account? Show in steps.(no utility curves, think about

Current account=Savings-Investment, and Investment is negatively related to interest rate increases) 3. What is the worry about easy money winding down WSJ article that we read?(jan 23,

davos issue, wsj) This is for 2018. Remember, US, UK, JAPAN, ECB are at this point, have large amount of bonds, and they are about to reduce-sell them in 2018.


4. In case of uncertainty, without any technical equations, what may happen to trade balance? Current account, please briefly explain.

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