What does the term 'Twin Deficit' refer to in the context of the Indian economy?
- High inflation and high unemployment
- Simultaneous Fiscal Deficit and Current Account Deficit
- Trade Deficit and Budget Deficit
- Revenue Deficit and Capital Deficit
Answer: Simultaneous Fiscal Deficit and Current Account Deficit
The Twin Deficit hypothesis suggests a strong link between a government's budget deficit (fiscal deficit) and the country's external trade deficit (CAD). High government borrowing increases domestic demand, which spills over into higher imports, thereby widening the Current Account Deficit.