Fiscal deficit was 4% of the GDP in 2013 to 2014. The fiscal deficit in 2015 to 2016 increased to 5% of the GDP. If the ...

Question

Fiscal deficit was 4% of the GDP in 2013 to 2014. The fiscal deficit in 2015 to 2016 increased to 5% of the GDP. If the GDP increased by 10% from 2013-14 to 2015-16, the percentage increase in the actual fiscal deficit is ____.

A. 37.5  B. 35.70  C. 25.00  D. 10.00

Accepted Answer

The actual fiscal deficit increased by 37.5%, so the answer is A. 37.5. The fiscal deficit is expressed as a percentage of GDP, but both the GDP and the percentage-of-GDP change between the two periods. To find the actual increase, we compute the absolute fiscal deficit in each period as (percentage * GDP) and then find the percentage change in the absolute values. Let GDP in 2013-14 be G. Fiscal deficit in 2013-14 = 0.04 * G. GDP in 2015-16 = 1.10 * G. Fiscal deficit in 2015-16 = 0.05 * 1.10 * G = 0.055 * G. The percentage increase is (0.055G - 0.04G) / 0.04G * 100 = (0.015/0.04) * 100 = 37.5%.