Question

Define budget deficit and trade deficit. 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 the country?

Answer 1

Budget Deficit :-

The excess of government expenditure over government income is termed as budget deficit.

Budget Deficit = G − T

Where,

G represents government expenditure

T represents government income

Trade Deficit :-

Trade deficit measures the excess of import expenditure over the export revenue of a country.

Trade Deficit = M − X

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.