Final answer:
Countries like Thailand, South Korea, Malaysia, Indonesia, Russia, and Argentina experienced severe recessions when foreign investors withdrew funds, causing currency depreciations and banking failures. The correct answer is option D.
Step-by-step explanation:
The countries that experienced severe recessions due to pessimistic foreign investors shifting their funds are Thailand, South Korea, Malaysia, and Indonesia during the Asian Financial Crisis of 1997-1998, as well as Russia and Argentina in the late 1990s and early 2000s. These economic downturns were characterized by sharp depreciations in currency values, leading to bankrupt banking systems and a drastic reduction in aggregate demand. Large government budget deficits also played a role in setting the stage for these financial crises.
Imbalances of trade in goods and services can impact international financial capital flows significantly. Large trade deficits can make a country rely heavily on foreign investment capital, which becomes problematic if investors lose confidence and withdraw their funds, precipitating a currency depreciation and banking failures. This pattern is seen in the crises experienced by these countries, where the loss of foreign capital exacerbated budget deficits, leading to a collapsed exchange rate and a deep recession.