Financial stress – feedback loops

INDIA - Report 08 May 2019 by Ila Patnaik

Ordinarily, economic systems find equilibrium. There is a shock, the problem heals as gaps between supply and demand are closed, and the system finds a new equilibrium.

However, when positive feedback loops are present, such benign outcomes may not arise. A system can rapidly move away from the calm state when feedback loops are in play. It is important to understand the feedback loops that are currently in operation. We discuss eight elements of positive feedback loops in motion that are inducing increased financial stress.

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