Should a current account deficit be a cause for alarm? Explain.

Current account deficit is the excess of imports of goods, services and transfers over total exports of goods, services and transfer. In this situation a country becomes debtor of rest of the world but every time it cannot be treated as alarming situation because the countries might be running in current account deficit to increase productivity and future exports.

However proper care should be taken for countries long run prospects if the trade deficit results in smaller saving or a larger budget deficit. The deficit could reflect higher private or government consumption. In such cases the country's capital stock will not rise rapidly to lead to enough growth required to repay its debt.

However if the trade deficit reflects a rise in investment then it is not a serious cause to worry about because this will help in building capital stock faster and will increase future output.