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 that country?

Question

Philoid · Accepted Answer

Budget deficit means when the amount by which government expenditure exceeds the tax revenue earned by government and trade deficit means when the amount of import expenditure exceeds the export revenue earned by the economy.

Budget deficit = G - T

Where,

G is government expenditure

T is government income that is tax revenue

Trade deficit = M - T or (I - S) + (G - T)

Where,

M is import expenditure

T is export revenue

I is Investment X Inflow into the country

S is saving

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.