A current account of any economy is in deficit when?

The correct answer is Option (3) → Receipts < Payments

The current account records what a country receives from the rest of the world for its goods, services and transfers, and what it pays out for them. When the payments are larger than the receipts, the country must borrow from abroad to cover the gap, and the current account is in deficit. Comparing the two gives three cases:

• Receipts > Payments: a current account surplus; the nation is a lender to other countries.

• Receipts = Payments: a balanced current account.

• Receipts < Payments: a current account deficit; the nation is a borrower from other countries, since the gap has to be financed.

Note: A same/similar question was asked in CUET (UG) in the papers below.

* A similar question.