In this causal schematic of a sovereign debt crisis:
,liquidity support from a central bank attempts to break the adverse feedback loop at point ________.

Question

In this causal schematic of a sovereign debt crisis: 
,liquidity support from a central bank attempts to break the adverse feedback loop at point ________.

Quizplus · Accepted Answer

Point 3 represents the adverse feedback loop between the government's inability to repay its debt and the decrease in investor confidence, which leads to higher borrowing costs and further inability to repay debt. Liquidity support from a central bank can break this feedback loop by providing the government with the necessary funds to meet its debt obligations and restore investor confidence.

In This Causal Schematic of a Sovereign Debt Crisis