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?
Solution
Budget Deficit
Budget deficit is referred to the situation when the expenditure done by government exceeds its income.
Budget Deficit is mathematically represented as G − T
Where,
G is the expenditure done by the government
T is the income earned by the government
Trade Deficit
When a country spends more on importing than on earning revenue through exports, such a situation is referred to as trade deficit
Trade Deficit is represented as M − X
Where,
M expenditure on imports
X revenue earned from exports
As per the question
I − S = Rs.2000 crores.
Budget Deficit
G – T = (−) Rs.1500 crores.
Therefore, trade deficit can be calculated as
Trade deficit = [I − S] + [G − T]
= 2000 + [−1500]
= Rs.500 crores.
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