Consider the existence of a country whose government is dependent upon the sale of a natural resource for it's revenue. This country is attempting to borrow money in the debt market. For every $1 that is borrowed, they will owe R dollars in the future. Financial investors are willing to lend to this country so long as R(1 e) = 1. e denotes the expected probability of default. Imagine that the country is attempting to borrow $100.

a) Imagine that e = 0.2. Calculate R.

b) Assume that in the following year, when it comes time to repay their loan, the government of the country in question receives $200 in revenue from its nautral resource sales. Will it be able to repay its loan? Continue to assume that e = 0.2.

c) Now imagine that there is a crash in the price of the resource that this country relies upon. The economy now only brings in $110 in revenue in the following year. Will the government be able to repay its loan in this case?

d) Once again assume that resource revenue will be $200 in the following year. But instead, now assume that e = 0.8. That is, financial investors believe that this economy will default on it's loan with 80% probability. Will the government be able to repay a $100 loan in this instance? (5 points) e) Explain the intuition behind your answers in c) and d). (