This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: and tomorrow, where HOME decides to consume in period 1, C 1 , and period 2, C 2 , for given incomes in period 1, Q 1 , and period 2, Q 2 . The world interest rate equals r. At this rate, assume HOME has its current account in balance a. Draw HOMEs initial intertemporal budget constraint and show its equilibrium consumption in the two periods. b. Assume there is an increase in the equilibrium world interest rate, such that the new r>r. Show what happens to the intertemporal budget constraint of HOME. c. What happens to its current account? d. Is HOME better off with this rate increase? Problem 3 The chart below is extracted from Bloomberg and shows the TED spread in the last few months. a. What is the TED spread measuring? b. The chart shows that there was a substantial increase in this spread in August. What do you think is the reason behind the recent increase? Department of Economics Fall 2011 University of California, Berkeley Econ 182 2...
View Full Document
This note was uploaded on 10/17/2011 for the course ECON 182 taught by Professor Kasa during the Spring '08 term at University of California, Berkeley.
- Spring '08