Exercise 4.1 {The Terms of Trade and the IEur-rent Account] Consider the following chart showing commodity prices in world markets: Price Commodity Period 1 Period? Wheat 1 1 Oil 1 2 In the table, prices of oil are expressed in dollars per barrel and prices of wheat in dollars per bushel. Kuwait is a. two-period economyr that produces oil and consumes wheat. Consumers have preferences described by the life- time utility function 01 CE: where {3'1 and Gig denote, respectively, consumption of wheat in periods 1 and 2, measured in bushels. Kuwait's per-capita endowments of oil are 5 barrels in each period. The country starts period 1 with net nancial assets carried over from period I] worth 1.1 bushels of wheat {i.e., {1 + rj = 1.1, with n] = Ill}. There is free capital mobility and the world interest rate is 1G peroent (r* = [Li]. Financial assets are denominated in units of wheat. 1. What are the terms of trade faced by Kuwait in periods 1 and 2'? 2. Calculate consumption, the trade balance, the current account and saving in periods 1 and 2 (expressed in bushels of wheat). 3. Answer the previous question assuming that the price of oil in the second period is not 2 but 1 dollar per barrel. Provide intuition