6. Debt overhang and debt forgiveness. Consider a small open economy that inherits a very large (effectively infinite) debt, D, which is scheduled to be paid off in the second period. The representative agent in the country has the utility function Ulog C+Blog C2. First-period endowment income is Y. Capital depreciates by 100 percent in produc- tion and second-period output is Y2 = 1, where I = K2 is date 1 investment. In the?