Question: Suppose in the first model in this chapter that there

Suppose in the first model in this chapter that there is a limited commitment friction and the possibility the nation could default in the current or future periods. Suppose that, if the nation does not default, then the limited commitment constraint does not bind. Could default still be preferred in the current period to not defaulting? Explain, with the aid of a diagram.


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  • CreatedDecember 05, 2014
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