An Emerging Economy as a Current GDP of $100 Billion

question 3

Multiple Choice

An emerging economy as a current GDP of $100 billion. It borrows $20 billion at a real interest rate of 5%, which it will repay next year. The costs of default are 25% of GDP. What is the country's repayment threshold level of GDP (i.e., the GDP at which it is indifferent between defaulting and repaying the loan) ?

• A) $75 billion
• B) $95 billion
• C) $84 billion
• D) $76 billion

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Definitions:

S-Waves

Secondary waves, or shear waves, are a type of seismic waves that move the ground perpendicular to the direction of wave propagation.

Computerized Warning System

An automated system designed to provide timely alerts about natural disasters, such as hurricanes, tsunamis, and earthquakes, using data analysis and sensors.

Tsunami

A tsunami is a series of ocean waves with extremely long wavelengths caused by large-scale disturbances such as underwater earthquakes, volcanoes, or landslides.

Ground Ruptures

Cracks or breaks in the Earth's surface caused by seismic activity, such as earthquakes, which can lead to significant damage to the built environment.