BUS Unit 5 DB SA four - Essay Example

The current account deficit is usually a result of a scenario where a country is investing more than it is saving. This entails that the country is using more resources from the other countries to meet its domestic consumption requirements. For instance, the current account deficit occurs when there is an imbalance in the balance of payment (BOP). This also reflects a scenario where the amount of money spent on imports is higher than the revenue generated from the exports. In developing countries, this may be problematic since it entails that the country is not able to meet its domestic requirements in terms of productivity.

This may also indicate that the government expenditure is higher than what it can produce. However, it can also be observed that the current account deficit is not very bad to the economy especially if the deficit has been a result of investment initiatives that are designed to generate revenue in the short to long run period. For instance, in the paragraph above, the U. S deficit is viewed as a big problem given that previously stood at 1. 1 trillion dollars but has been halved to 680 billion dollars.

This shows a 51 percent decrease in the current account deficit and it can be attributed to different policy changes such budget cuts, tax increments on those with a larger income bracket as well as stimulating economic growth. In this case, it can be seen that the current account deficit for USA is still controllable from within the country so it is not that bad. The deficit only becomes bad when the economy is now sustained on external debt.