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In the context of Indian economy, the term 'Twin Deficit refers to
- a)Revenue deficit accompanied with Fiscal Deficit.
- b)Occurrence of Current Account Deficit and Fiscal Deficit together.
- c)Simultaneous Current Account Deficit and Capital Account Deficit.
- d)Simultaneous rise in the Non- Performing Assets of banks and debt- burden of the corporates.
Correct answer is option 'B'. Can you explain this answer?
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Most Upvoted Answer
In the context of Indian economy, the term 'Twin Deficit refers toa)R...
Explanation:
The term 'Twin Deficit' in the context of the Indian economy refers to the occurrence of Current Account Deficit (CAD) and Fiscal Deficit (FD) together.
Current Account Deficit (CAD)
The Current Account Deficit (CAD) is a measure of the trade balance of a country. It is the difference between a country's exports and imports of goods and services, along with net income and transfer payments. In simple terms, if a country imports more goods and services than it exports, it results in a current account deficit.
Fiscal Deficit (FD)
The Fiscal Deficit (FD) is the difference between the government's total expenditure and its total revenue. In other words, if the government's expenditure exceeds its revenue, it results in a fiscal deficit.
Twin Deficit
When a country experiences both Current Account Deficit and Fiscal Deficit together, it is referred to as a Twin Deficit. This is because both deficits are interrelated and have an impact on each other.
For instance, a fiscal deficit can lead to an increase in government borrowing, which in turn can lead to an increase in interest rates. This can result in a decrease in investment, which can negatively impact the country's trade balance and lead to a current account deficit.
Similarly, a current account deficit can lead to a decrease in the value of the country's currency, which can result in an increase in inflation. This can lead to an increase in government spending, which can further widen the fiscal deficit.
In conclusion, the Twin Deficit is a concerning issue for the Indian economy as it can lead to macroeconomic instability and a decrease in investor confidence. The government must take measures to reduce both deficits and ensure sustainable economic growth.
The term 'Twin Deficit' in the context of the Indian economy refers to the occurrence of Current Account Deficit (CAD) and Fiscal Deficit (FD) together.
Current Account Deficit (CAD)
The Current Account Deficit (CAD) is a measure of the trade balance of a country. It is the difference between a country's exports and imports of goods and services, along with net income and transfer payments. In simple terms, if a country imports more goods and services than it exports, it results in a current account deficit.
Fiscal Deficit (FD)
The Fiscal Deficit (FD) is the difference between the government's total expenditure and its total revenue. In other words, if the government's expenditure exceeds its revenue, it results in a fiscal deficit.
Twin Deficit
When a country experiences both Current Account Deficit and Fiscal Deficit together, it is referred to as a Twin Deficit. This is because both deficits are interrelated and have an impact on each other.
For instance, a fiscal deficit can lead to an increase in government borrowing, which in turn can lead to an increase in interest rates. This can result in a decrease in investment, which can negatively impact the country's trade balance and lead to a current account deficit.
Similarly, a current account deficit can lead to a decrease in the value of the country's currency, which can result in an increase in inflation. This can lead to an increase in government spending, which can further widen the fiscal deficit.
In conclusion, the Twin Deficit is a concerning issue for the Indian economy as it can lead to macroeconomic instability and a decrease in investor confidence. The government must take measures to reduce both deficits and ensure sustainable economic growth.
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Community Answer
In the context of Indian economy, the term 'Twin Deficit refers toa)R...
- When the economy has both Current Account Deficit and Fiscal Deficit, it is said to be facing the twin deficit. Hence option (b) is the correct answer.
- Both deficits often reinforce each other.
- The current account measures the flow of goods, services and investments into and out of the country. There is a deficit in Current Account if the value of the goods and services imported exceeds the value of those exported.It comprises of following components:
- Trade of goods,
- Services, and
- Net earnings on overseas investments and net transfer of payments over a period of time, such as remittances.
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In the context of Indian economy, the term 'Twin Deficit refers toa)Revenue deficit accompanied with Fiscal Deficit.b)Occurrence of Current Account Deficit and Fiscal Deficit together.c)Simultaneous Current Account Deficit and Capital Account Deficit.d)Simultaneous rise in the Non- Performing Assets of banks and debt- burden of the corporates.Correct answer is option 'B'. Can you explain this answer?
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