The spread of down turn

http://www.usatoday.com/money/world/story/2011-12-05/asian-economies-europe/51662226/1

Under the European debt crisis, not only the Western economies are affected, Eastern economies are also suffering from the shrinkage in growth rate because of the crisis.

From the class, we learned the during the Great Depression, under the Gold Standard, countries had to increase interest rate in order to keep pegging to Gold. Therefore, there was a race in increasing interest rates among countries that caused all of their money supply shrunk, which worsen the economic down turn. Although nowadays the Gold Standard had been abandoned, we still see economic down turn spread throughout the global economy. But the spreading of economic down turn is not through the exchange rate channel, but through the export/import channel. Because of the decline in income, Western countries import lesser goods from Eastern countries, which makes many export-driven economies like China suffered from the Western economic down turn. Since the income from export dropped, the income of the manufacturing industries would also dropped; Or, in other words, since export is a component of national income, decrease in export causes decrease in national income. Although in net, many Eastern economies are growing, but the growth is slowing down. Another channel for this down turn to spread would be the stock market. Because the stock crashes in United States and Europe, other stock markets like Hong Kong also experienced crashes. This leads to decrease in wealth of stockholders in Hong Kong; hence, they may consume less. If consumption (a component of national income) decreases, national income would also decrease.