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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Why are budget deficits and trade deficits sometimes called the twin deficits?

To determine

Why the budget deficits and the trade deficits are called twin deficits.

Explanation

The government expenditure increases when the government increases their spending than the revenue earned by the government through the taxes. Similarly, when the imports are higher than the exports of the economy, the economy faces the situation called the trade deficit.

When there is government budget deficit, it will reduce the size of the national savings because the national savings are the summation of the private savings and the government savings. Since the national savings are the base for the lonable funds in the lonable fund market, the reduction in the national savings will reduce the availability of lonable funds in the market...

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