Suppose an emerging economy has a current GDP of $100 billion. Of this GDP, consumption is 50% of it. The country borrows $20 billion at a real interest rate of 5%, which it will repay next year. The costs of default are 25% of GDP. Will it repay or default on the loan? Explain.

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The Answer of Suppose an emerging economy has a current GDP of $100 billion. Of this GDP, consumption is 50% of it. The country borrows $20 billion at a real interest rate of 5%, which it will repay next year. The costs of default are 25% of GDP. Will it repay or default on the loan? Explain.

Suppose an Emerging Economy Has a Current GDP of $100