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.