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Unformatted text preview: DEPARTMENT OF ECONOMICS FALL 2009 UNIVERSITY OF CALIFORNIA, BERKELEY ECON 182 Problem Set 2 Due in class on Thursday, September 17 th at the beginning of lecture . Students that show their work and write neatly will be graded favorably. Please write your full name, GSI, and section time on your problem set. 1. Intertemporal Approach to the Current Account This exercise reviews the intertemporal approach to the current account introduced in lecture 4. In particular, we will use a graphical representation of the theory to illustrate some key ideas. The following assumptions are made: we are studying a small open economy (remember this means that it takes the world interest rate r as given); there are only two periods, period 1 and 2, respectively; there is a single consumption good; the economy is endowed with output levels Y 1 and Y 2 in each period. a). Write down the intertemporal budget constraint for our small open economy, and explain intuitively what it means....
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- Spring '08