Problem 4 Consider an economy populated by identical households with preferences described by the utility function In C1 + In C2 where Ct denotes consumption in period t = 1, 2. Suppose that consumption is a composite of tradable and nontradable consumption given by Ct = VCT CN, where Cf and C, denote consumption of tradable and nontradable goods in period t = 1, 2. Houscholds receive 1 unit of tradable goods in period 1 and 2 units in period 2 (Q1 = 1 and Q2 =2) and 4 units of nontradables in period 1 and 3 in period 2 (Q1 = 4 and Q2 =3). Suppose further that the country has free capital mobility and that the world interest rate is nil (r = 0). Calculate the equilibrium trade balance in periods 1 and 2 (TB, and TB2) and the relative price of non- tradables in periods 1 and 2 (p1 and p2)