Question 6

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?

Answer

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

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