Question

Can you give an example of how imbalances in one country's economy are transmitted to other countries and regions?

Answer 1

Economic Imbalances are problematic for any country if not dealt properly. There are a lot of reasons through which economic imbalances arise but the main aspect is that when total savings are greater than total investments the economy is said to be an unbalanced economy.

Imbalances in one economy impacting other countries and regions:

Now suppose an economy with an unbalanced situation tries to balance itself by exporting more goods outside. It does so that its deficit consumption in comparison to savings is met by the demand created by exports of goods. In this manner it balances out itself by equating savings with consumption and investments.

On one hand it is good for one country but when a country exports or imports all transactions iin the form of currency exchange. The so called foreign exchange markets are just like any market, there are buyers and sellers and if there are more buyers than sellers then prices go up and if there are more sellers than buyers then prices go down. Hence, again economic fluctuations occur in the global market and this is not good for either of the nations involved.

Therefore, it is always the scenario economic imbalances of different nations are interconnected.