What theory states that problems in financial markets can amplify shocks to the real economy and create a feedback loop, which exacerbates economic problems?

Question

Quizplus · Accepted Answer

This theory is known as the financial accelerator theory. It suggests that problems in financial markets can worsen the impact of economic shocks by restricting credit and investment, which can in turn lead to further economic downturns. This creates a feedback loop that can exacerbate economic problems.

What Theory States That Problems in Financial Markets Can Amplify