Question

1. What are the links between the budget deficit and trade deficit?  What would be the most effective way to reduce the trade deficit per class notes? (Lesson 18 and 19)
   1. What is the moral of the story with regards to our trade deficit as discussed in the class videos?

How has COVID-19 affected the budget deficit?  Be specific.

Answer 1

Budget Deficit:-A budget deficit happens when expenses surpass revenue and specify the financial health of a country. The government commanly uses the term budget deficit when referring to spending rather than businesses or individuals. Arised deficits form national debt.

Trade Deficit:- A trade deficit happens when a country's imports bigger than its exports during a given time period. It is also known as a negative balance of trade (BOT).

The balance can be determined on different categories of transactions: goods , services, goods and services. Balances are also determined for international transactions—current account, capital account, and financial account.

Moral of the story with regards to over trade deficit:-

A trade deficit can be determined on different categories within an international transaction account. These involve goods, services, goods and services, current account, and the sum of balances on the current and capital accounts.

Trade deficits happen when a country wants proper capacity to produce its own goods – whether due to absence of skill and resources to create that capacity or due to preference to obtain from another country .

Covid19 effects on budget deficit:-

Closing of borders and travel ban has surely affected travel and we guess to some extent, trade. Based on this, we can anticipate the (X-M) variable to be impacted, some countries more than others.

Self distancing and lockdowns will surely have an impact on employment, especially in economies with a big chink of non permanent workers like the USA. Regardless, consumer confidence will be effected and may impact consumer spending variable. Durable items will surely come under pressure.

Spending by private companies normally depends on consumer spending, net we can expect this variable to be impacted.

Spending by government on the other hand, especially for countries with strong fiscal positions and credit ratings will certainly go high.