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A current account deficit is a trade measurement that says a country imported more goods, services, and capital than it exported. It encompasses the trade deficit plus capital like net income and transfer payments. A nation creates a current account deficit when it relies on foreigners for the capital to invest and spend. Depending on why the country is running the deficit, it could be a positive sign of growth. It could also be a negative sign that the country is a credit risk.
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According to the Bureau of Economic Analysis, there are four components of the current account. The largest is trade in goods and services. The other three are much smaller. Net income is earned by residents by overseas investments or work. Second are direct remittances from workers to their home country, foreign aid, and foreign direct investments. The third is increases or decreases in assets like banks deposits, securities, and real estate.
The largest component of a current account deficit is the trade deficit. That's when the country imports more goods and services than it exports. The current U.S. trade deficit reveals that the United States imports a lot more than it exports. Many think that America is becoming less competitive in the global market. The second largest component is a deficit in net income. That occurs when foreigners earn more from the country than residents earn on foreign work and investments.