In the island nation of Isolandia the GDP in period 1 is recorded as $1,600 billion. The nation runs a current account deficit of $200 billion in this period, due to which it borrows money at a market rate of interest of 4 percent. In period 2, the nation repays the principal plus interest.
A. Compute the value of domestic spending on C, I, and G in period 1.
B. What would be the value of domestic spending in Isolandia in the second period if all the first-period loans are repaid with interest and no economic growth occurs between periods?
C. What would be the value of domestic spending in Isolandia in the second period if all the first-period loans are repaid with interest and GDP grows by 5 percent between these two periods?