Feedback Loop in Economics

A feedback loop in economics occurs when the outcomes of an economic action influence future actions, creating a cycle. For example, if increased consumer confidence boosts demand, companies may produce more, leading to job creation and higher income, which further raises confidence. Conversely, a decline in confidence can reduce spending and slow the economy, leading to negative effects that reinforce the downturn. These loops can stabilize or destabilize markets depending on whether the effects amplify or dampen initial changes. Understanding feedback loops helps explain how economic policies or shocks can have lasting impacts through self-reinforcing mechanisms.