course hero which of the following is not a source of economic imbalance for eu countries?

How has the pattern of imbalances in global trade changed?

Although the pattern of imbalances in global trade have shifted over the years, for example one big change was when the USA shifted after the early 1970s from being a surplus country exporting capital to being a deficit country importing capital, the existence of trade imbalances has been a persistent feature of global trade.

What happens when exports and imports are equal in an economy?

If exports and imports: are equal, then the economy is unhealthy. . are equal, then trade is balanced. are imbalanced, then a trade surplus exists. . are imbalanced, then a trade deficit exits. are equal, then trade is balanced.

What are the consequences of large imbalances in the global economy?

In fact almost invariably all large flows of capital generated by large trade imbalances have led to some sort of asset inflation and speculative boom/bubble.

How stable is the unequal balance of trade?

This unequal balance of trade does not seem very stable. The exporting country is still saving too much, its savings are piling up in its financial institutions and because all its investment costs have already been met there are no domestic ways left to invest those accumulating savings.

Why is the obvious solution to the problem of the instability of uneven trade, of surpluses and too much savings in?

This is because the obvious solution to the problem of the instability of uneven trade, of surpluses and too much savings in one country, and deficits and too little demand in the other economy , is for the surplus country to send some of its excess saving to the deficit country to increase its domestic demand.

How is an economy balanced?

We saw in part one of this series how an economy is balanced if its consumption and investment are the same size as its production. In other words if its savings are the same size as its investments. We also saw how an economy could become unbalanced if its savings were not completely spent on investment, in which case not all the products made by that country could be sold because there would be insufficient demand.

Why does capital flow exist in the first place?

The reason the imbalances that generated the capital flow exists in the first place are because the products of the surplus countries were penetrating the economies of the deficit countries and so by definition it is very likely that there will be limited investment opportunities in the deficit countries. A big part of the capital flows ...

What happens when a country sells its debt abroad?

When the government of a deficit country sells its debt abroad, when foreign investors buys its bonds, what is happening is that foreign capital is replacing local domestic taxation as a source of funding for government spending. The inflowing capital by buying government debt is fuelling an increase in consumption in the recipient country as the citizens and business pay less taxes but the government continues to spend, so total consumption can go up. This increase in consumption is an increase in national income (even though a portion of that is now borrowed) and the increase in income pays for the imports flowing from the surplus countries. The excess savings of the surplus country has flowed, via purchases of the deficit country’s sovereigns into the deficit country’s economy and has paid for the imports that cause the deficit that matches the surplus.

How does an unbalanced trade system work?

To see how an unbalanced trade system works lets imagine just two countries, one is running a trade surplus and the other a matching trade deficit. The country with the trade surplus is exporting goods it could not sell domestically because of lack of demand. The country importing the goods now finds some of its investment or consumption goods are ...

How to rebalance an economy?

Rebalancing an economy through exports to overcome the lack of demand caused by too much saving requires that a country run a trade surplus, that it exports more than it imports.

Which country exports 25% of its GDP?

In the last decade and half the trade surpluses of these two countries have been both very large and very persistent, China regularly exports 25% of its GDP and Germany exports almost 50% of its GDP.