UPSC General Studies Sample Paper General Studies Sample Paper-4

  • question_answer
    Trade deficit is possibly affected by which of the following factors?
    1. Domestic savings       
    2. Fiscal deficit         
    3. Investment in the economy
    Select the correct answer using the codes given below.

    A)  1 and 3           

    B)  2 and 3

    C)  1 and 2

    D) (d) All of these

    Correct Answer: D

    Solution :

    [d] When a country runs a trade deficit, it is important to look at the right side of equation to see whether there has been a decrease in saving, increase in investment or an increase in the budget deficit. There is reason to worry about a country's long-run prospects, if the trade deficit reflects smaller saving or a larger budget deficit (when the economy has both trade deficit and budget deficit, it is said to be facing twin deficits. The deficit could reflect higher private or government consumption.                          

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