Question

Consider the following statements:

A. The coexistence of budget deficit and trade deficit is the problem of Twin Deficit.
B. The coexistence of fiscal deficit and current account deficit is the problem of Twin Deficit.
C. The coexistence of revenue deficit and primary deficit is the problem of Twin Deficit.

Which of the statement/statements given above is/are correct?

1. A and B only
2. B and C only
3. B only
4. A only

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Answer:
3. B only

Explanation:

• Statement A: Incorrect. While the budget deficit and trade deficit are important, the term "Twin Deficit" specifically refers to the coexistence of fiscal deficit and current account deficit, not budget deficit and trade deficit.
• Statement B: Correct. The term "Twin Deficit" is used in macroeconomics to describe a situation where a country faces both a fiscal deficit (government's excess expenditure over revenue) and a current account deficit (when the country's imports exceed its exports).
• Statement C: Incorrect. The coexistence of revenue deficit and primary deficit is not referred to as the Twin Deficit.

Source:

• Ministry of Finance, India
• Economic Survey, India