Macro Economics ProjectExecutive SummaryBalance of PaymentsThe BoP, also known as the balance of international payments, deals with an economy's transactions with the rest of the world, during a specified period of time . It concerns goods, services and income, financial claims and debts and transfers such as gifts and foreign aid. The balance of payments involves two types of accounts: The trade balance, or in the case of India, the trade deficit, is a major component of the current account deficit. If the economy's output can be characterized as Y, the equations below can be derived as follows: Y = C + I + G + NXNX=Y– (C+ I + G )NX = (Y– C– G ) – I= S – IWhere, C: Consumption; I: Investment; G: Public expenditure; NX: net exports; S: Save. As we can see from the derivation above, NX can also be expressed as the difference between saving and investment. Based on the above premise of the increasing current account deficit in the country, in this report, we provide an overview of the causes of CAD, identifying them. as implicit or obvious causes, while also exploring some practical, situational and structural causes that explain the deterioration of the current account in India. We map our analysis using the IS model for an open economy, use data on trade balance, oil and gold prices for around twenty years, from 1990 to 2013, to perform an analysis of regression which helps us comment on the correlation that could exist between the two statistics. We also explore the J-curve effect by analyzing the exchange rate and trade balance trends for the year 2013. After establishing the causes of the CAD, we explore the concept of twin deficit and its importance in the discussion on the current account deficit. We then move on to the list. ...... middle of paper ......ficit.html4. http://www.imf.org/external/pubs/ft/fandd/basics/current.htm5. www.tradingenomics.com6. www.indiastat.com7. Why is the US current account deficit so large? Evidence from vector autoregressions, Daniel David Bachman, Southern Economic Journal, Vol. 59, no. 2 (October 1992) (pp. 232-240)8. Nicholas Apergis & Konstantinos Katrakilidis & Nicholas Tabakis, 2000. “Sustainability of the current account deficit: the case of Greece”, Applied Economics Letters, Taylor and Francis Journals, vol. 7(9), pages 599 to 603.9. India's Experience with Capital Flows: The Elusive Quest for a Sustainable Current Account Deficit, Ajay Shah, IlaPatnaik, NBER Working Paper No. 11387, May 200510. http://timesofindia.indiatimes .com/business/india-business/Indias-current -accounts-deficit-falls-to-5-2-billion-in-July-September-quarter/articleshow/26746231.cms?