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1. Use equations to support your answer to this question. Do not forget to explain your reasoning and to show how you came up with the equations you use. No credit without an explanation. For simplicity, ignore net international payments to employees and net unilateral transfers by assuming that they are always equal to zero. When the world interest rate is negative such that -1<r*<0:
A) A two-period economy cannot run perpetual
B) A two-period economy can run perpetual trade deficits even if its initial net foreign asset position is negative.
C) A two-period economy can run perpetual trade surpluses if its initial net foreign asset position is positive.
D) A two-period economy cannot run perpetual trade surpluses if its initial net foreign asset position is negative.
E) None of the above
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