Question

Explain the difference between a trade deficit, a current account deficit, and a balance of payments deficit. Explain fully why a current account deficit can be good for a country.

Answer 1

Current account deficit - Trade deficit is related to each other. Generally, they are used in place of each other but there are some differences.
Under current account deficit, the expenses incurred by a country on imports are more than the income from exports which leads to increase in CAD.
Whereas under trade deficit, imports made by a country are more than exports.
Balance of Payments is a broad concept of how a country's payment in a given period is the essence of monetary transactions made with the rest of the world. The balance of payment deficit means that the current account may be deficited and the capital account may be deficient, or either of these can be from one deficit, leading to a total BOP deficit.

A broad objective advantage of current account deficit can be that the current needs of that country are met by goods services received from other countries by other means while keeping the resources available in their country safe for the future.