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The term ‘Twin deficit’ in an economy means-
  • a)
    High budget deficit and high fiscal deficit.
  • b)
    High current account deficit and high capital account deficit.
  • c)
    High capital account deficit and high fiscal deficit.
  • d)
    High current account deficit and high fiscal deficit.
Correct answer is option 'D'. Can you explain this answer?
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The term ‘Twin deficit’ in an economy means-a)High budget ...
Twin deficit basically refers to a situation where the country runs relatively large current account and fiscal deficits.
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The term ‘Twin deficit’ in an economy means-a)High budget ...
Understanding the Twin Deficit
The term "Twin Deficit" refers to a situation in an economy where there are two significant imbalances occurring simultaneously: a high current account deficit and a high fiscal deficit. Here’s a breakdown of what each deficit entails:
Current Account Deficit
- This occurs when a country’s total imports of goods, services, and transfers exceed its total exports.
- A persistent current account deficit indicates the country is borrowing from foreign sources to fund its spending.
Fiscal Deficit
- A fiscal deficit arises when a government's total expenditures exceed its total revenues, excluding money from borrowings.
- It reflects the government's inability to finance its expenses through its own income, requiring it to borrow to bridge the gap.
Implications of Twin Deficit
- The presence of both deficits can lead to economic instability, as it may indicate over-reliance on foreign capital.
- Investors may lose confidence, leading to depreciation of the national currency and potentially higher inflation.
- Policymakers face challenges in managing economic growth while addressing these deficits, often requiring austerity measures or structural reforms.
Conclusion
In summary, the "Twin Deficit" phenomenon highlights critical economic vulnerabilities. Understanding its components—current account and fiscal deficits—provides insight into the health of an economy and the challenges it may face. Addressing these deficits is crucial for achieving sustainable economic growth and stability.
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Directions (76-80): You have a passage with five questions following.Passage IAs financial markets worldwide tumbled over concerns that Greece would default on its debt to the troika comprising the European Commission, the European Central Bank and the International Monetary Fund, the people of Greece were being presented with a Hobsons choice by its government led by the leftist party platform, Syriza. In the midst of intense negotiations with representatives of the troika over rolling over debt payments, the Syriza government sought to extend the deadline for payments in order to allow it to put the conditionalities of the troika for a bailout extension to a referendum vote. Prime Minister Alexis Tsipras has denied that this referendum, scheduled for July 5, is on whether or not to continue within the eurozone; he says it is only on the acceptance of the troikas demands. But with the troika unrelenting on the June 30 deadline for repayment of debts to the IMF, and Greece being in no position to pay, the referendum could more or less be on remaining in the eurozone. This presents a difficult choice for the people of Greece. After all, the Syriza was voted to power in January 2015 precisely on the promise of halting the programme of austerity imposed by creditors that has resulted in a drastic contraction of Greeces economy and increase in unemployment. Yet, the mandate was also for negotiations to remain within the eurozone as Greek voters had realised that the Grexit would mean too much pain (at least in the near term) due to capital flight, a run on the banks and other troubles in returning to the drachma as currency. Over the past five months, Syriza representatives, true to their mandate, have sought to alter Greeces terms of engagement with its creditors, seeking debt relief that would allow fiscal expansionary policies to spur the economy. Yet, the troikas response has been to stonewall the proposals and instead push Greece to further the austerity measures it has pursued following the first major bailout in 2010 and another in 2012. The troikas reasoning is simple: tolerating a Greek default would amount to sending signals to other creditor-nationsabout similar leniency. Instead, the troika has merely offered a five-month extension of Greeces bailout programme with fresh funds but with persisting austerity conditions. With barely a concession to the Greek position, there remains a wide gap between the Greek peoples expectations and the EU recommendations. With Greece already having to impose capital controls and bank holidays to avoid further capital flight measures that were supposed to be taken in the event of an exit from the EU it begs the question whether the Grexit is inevitable.Q. Choose an appropriate title for the passage.

Passage IAs financial markets worldwide tumbled over concerns that Greece would default on its debt to the troika comprising the European Commission, the European Central Bank and the International Monetary Fund, the people of Greece were being presented with a Hobsons choice by its government led by the leftist party platform, Syriza. In the midst of intense negotiations with representatives of the troika over rolling over debt payments, the Syriza government sought to extend the deadline for payments in order to allow it to put the conditionalities of the troika for a bailout extension to a referendum vote. Prime Minister Alexis Tsipras has denied that this referendum, scheduled for July 5, is on whether or not to continue within the eurozone; he says it is only on the acceptance of the troikas demands. But with the troika unrelenting on the June 30 deadline for repayment of debts to the IMF, and Greece being in no position to pay, the referendum could more or less be on remaining in the eurozone. This presents a difficult choice for the people of Greece. After all, the Syriza was voted to power in January 2015 precisely on the promise of halting the programme of austerity imposed by creditors that has resulted in a drastic contraction of Greeces economy and increase in unemployment. Yet, the mandate was also for negotiations to remain within the eurozone as Greek voters had realised that the Grexit would mean too much pain (at least in the near term) due to capital flight, a run on the banks and other troubles in returning to the drachma as currency. Over the past five months, Syriza representatives, true to their mandate, have sought to alter Greeces terms of engagement with its creditors, seeking debt relief that would allow fiscal expansionary policies to spur the economy. Yet, the troikas response has been to stonewall the proposals and instead push Greece to further the austerity measures it has pursued following the first major bailout in 2010 and another in 2012. The troikas reasoning is simple: tolerating a Greek default would amount to sending signals to other creditor-nationsabout similar leniency. Instead, the troika has merely offered a five-month extension of Greeces bailout programme with fresh funds but with persisting austerity conditions. With barely a concession to the Greek position, there remains a wide gap between the Greek peoples expectations and the EU recommendations. With Greece already having to impose capital controls and bank holidays to avoid further capital flight measures that were supposed to be taken in the event of an exit from the EU it begs the question whether the Grexit is inevitable.Q.Which of the following can be true according to the passage?(

The term ‘Twin deficit’ in an economy means-a)High budget deficit and high fiscal deficit.b)High current account deficit and high capital account deficit.c)High capital account deficit and high fiscal deficit.d)High current account deficit and high fiscal deficit.Correct answer is option 'D'. Can you explain this answer?
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