a) Draw the two-period budget constraint for a country that produces 100 units of output in the first period, 88 units in the second period and faces an interest rate of 10%.

b) Suppose the country is consuming the same amount in both periods. However, after a bad negotiation, the country can lend but not borrow, would it be better off, worse off, or the same?

c) Suppose the country is consuming the same amount in both periods. However, after a bad negotiation, the country realizes it was indebted and hence B0 = -40, and the country can lend but not borrow, would it be better or worse off?