During the 2010 European crisis, Italy faced 6% borrowing rate. Assume that, if it defaults, Italy's debt would be written off but output would be 20% lower. (1) What's the cutoff level of debt burden...

Extracted text: During the 2010 European crisis, Italy faced 6% borrowing rate. Assume that, if it defaults, Italy's debt would be written off but output would be 20% lower. (1) What's the cutoff level of debt burden above which Italy defaults? (2) Assume that the risk free rate in the world is 2%, what's the implied default probability for Italy if its borrowing rate is 6%?