Question

The excess of private investment over saving of a country in a particular year was Rs. 2,000 crores. The amount of budget deficit was (–) Rs. 1,500 crores. What was the volume of trade deficit of that country?

Answer 1

(M – X) = Trade Deficit (Imports minus Exports)

(I – S) = Excess of Private Investment over Saving

(G – T) = Budget Deficit (Government Expenditure minus Tax Revenue)

Where,

M represents expenditure on imports.

X represents revenue earned by exports.

It is given that,

I − S = Rs.2000 crores.

G − T = (−) Rs.1500 crores.

Therefore,

Trade deficit = [I − S] + [G − T]

= 2000 + [−1500]

= Rs. 500 crores.