The US economy has entered a recession, causing the default rate on loans to surge, consequentlyincreasing the interest spread, denoted as x. Note that borrowing = lsaving + x. Explain how the increasing default rate will affect the decisions of borrowing households in a two-period production model: {c, c', l, l', s, NS, NS}. You should describe how both substitution and income effects change the decisions and conclude the price effects on the optimal decisions by combining the two effects, making any assumptions if necessary.