Question

Pr(Y ? y) = \frac{y - a}{b - a} for y ? [a, b]. (c) 1. Write down the budget constraints for the households and the government in t = 1. 2. Write down the budget constraints for the households and the government in t = 2 if the government decides to repay. Write down the budget constraints for the households and the government in t = 2 if the government decides to default. (c) The equilibrium level of debt in t = 1 is given by D? = 1. 2. Calculate the probability of default and the price of debt in t = 1, q?, and the value of debt in t = 1, q?D?.

          Pr(Y ? y) = \frac{y - a}{b - a} for y ? [a, b].
(c)
1. Write down the budget constraints for the households and the government in t = 1.
2. Write down the budget constraints for the households and the government in t = 2 if the government decides to repay. Write down the budget constraints for the households and the government in t = 2 if the government decides to default.
(c) The equilibrium level of debt in t = 1 is given by D? = 1.
2. Calculate the probability of default and the price of debt in t = 1, q?, and the value of debt in t = 1, q?D?.

Pr(Y ? y) = (y - a)/(b - a) for y ? [a, b].
(c)
1. Write down the budget constraints for the households and the government in t = 1.
2. Write down the budget constraints for the households and the government in t = 2 if the government decides to repay. Write down the budget constraints for the households and the government in t = 2 if the government decides to default.
(c) The equilibrium level of debt in t = 1 is given by D? = 1.
2. Calculate the probability of default and the price of debt in t = 1, q?, and the value of debt in t = 1, q?D?.

Added by Jennifer V.

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