the following chart showing commodity prices in world markets: Commodity Period 1 1 1 Wheat Oil...

  

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the following chart showing commodity prices in world markets: Commodity Period 1 1 1 Wheat Oil Price C1 C2, Period2 1 2 Consider In the table, prices of oil are expressed in dollars per barrel and prices of wheat are expressed in dollars per bushel. Kuwait is a two-period econ- omy that produces oil and consumes wheat. Consumers have preferences described by the lifetime utility function where C₁ and C2 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 financial assets carried over from period 0, including interest of 10 percent, worth 1.1 bushels of wheat (i.e., (1+ro)B = 1.1). The country enjoys free capital mobility and the world interest rate is 10 percent. 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 savings in periods 1 and 2. 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. the following chart showing commodity prices in world markets: Commodity Period 1 1 1 Wheat Oil Price C1 C2, Period2 1 2 Consider In the table, prices of oil are expressed in dollars per barrel and prices of wheat are expressed in dollars per bushel. Kuwait is a two-period econ- omy that produces oil and consumes wheat. Consumers have preferences described by the lifetime utility function where C₁ and C2 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 financial assets carried over from period 0, including interest of 10 percent, worth 1.1 bushels of wheat (i.e., (1+ro)B = 1.1). The country enjoys free capital mobility and the world interest rate is 10 percent. 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 savings in periods 1 and 2. 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.

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1 The terms of trade faced by Kuwait in periods 1 and 2 can be calculated as the ratio of the price of wheat to the price of oil in each period Terms ... View the full answer