WBCS.LIVE practice question

The 'Twin Deficit' problem in an economy refers to the simultaneous occurrence of?

Solve this multiple-choice question and check the correct answer with its explanation below.

Answer options

  1. Fiscal Deficit and Current Account Deficit
  2. Revenue Deficit and Capital Deficit
  3. Fiscal Deficit and Budgetary Deficit
  4. Inflation and Unemployment

Correct answer and explanation

Correct answer: Fiscal Deficit and Current Account Deficit

Explanation: āœ… Correct Answer: A) Fiscal Deficit and Current Account Deficit šŸ“š Explanation: A Twin Deficit occurs when a country has both a high Fiscal Deficit (government spending exceeds revenue) and a high Current Account Deficit (imports exceed exports). High fiscal deficits often lead to higher imports and lower savings, which in turn widen the current account gap. This situation can lead to currency instability and economic vulnerability to external shocks.