Tanvir asked: What’s the difference between current account deficit and trade deficit?
First the meaning of “Balance of Payment“= keeping track of incoming and outgoing money from a country.
In Balance of Payment, we’ve two components :
- Current Account and
- Capital Account.
Current Account= the sum of
- Balance of trade (exports minus imports of goods and services)
- Factor Income (interest and dividends from international loans and investments.)
- Net transfer payments (such as foreign aid).
When we say Current account deficit, means incoming money is less than outgoing money.
First, the meaning of “Balance of Trade“ = difference between value of import and export.
When we are importing more than our exports: we’ve Trade Deficit.
It doesn’t consider foreign aid and interest payments but only the ‘trade’ part.
Do you see the hierarchy ??
Balance of Payment >> Current Account >> Balance of Trade >> Trade Deficit
By the way, how to calculate current account deficit, has been explained here: Click ME!