Question SCENARIO: EMERGING ECONOMY An emerging economy has a current GDP of $100 billion. It borrows $20 billion at a real interest rate o 5%, which it will repay next year. The costs of default are 25% of GDP. Reference: Ref 11-4 (Scenario: Emerging Economy) Suppose that its GDP next year falls to $80 billion. Which of the following is a correct assumption? Answer It will repay the loan. It will default on the loan. It will be indifferent toward repaying or defaulting on the loan. Not enough information is provided to answer the