fiscal deficit

[bin_english]

A fiscal deficit (G-T>0) implies that the private sector must save more than it invests (S-I>0) or the country must run a trade deficit (X-M<0).
help please. dont get it.

 

[Tartaglia]

Remind yourself of the following macroeconomic equation that always has to hold (in an open economy):
X-M=(S-I)+(T-G)
You can re-arrange:
G-T=(S-I)-(X-M)
If G-T>0, then S-I>0 or X-M<0 (because of the negative sign in front of it).
Reading 17, 3.1. Aggregate Demand, in case you want to check it out in the curriculum.

 

[bin_english]

so if G-T<0, i would have to take the reverse of the above?
looks like i have to take it as it is. memorize the equation and move on. cos it still doesnt really make much sense.

 

[Tartaglia]

Let’s put in some numbers:
Let’s say G=10 and T=9 so G-T=1>0.
Let’s further assume that S=10 and I=10, so S-I=0. Imagine now that X=5 and M=5 so X-M=0. Then the equation would not hold because:
10-9=(10-10)-5-5)
1=0
which cannot be.
Thus it must be the case that either X-M=-1 or S-I=1.
Put it some numbers and see what happens for G-T<0