In this causal schematic of a sovereign debt crisis:
,austerity measures designed to reduce the government deficit (point 4)may have the undesired effect of intensifying the adverse feedback loop at point 5.The source of this danger is ________.

Question

In this causal schematic of a sovereign debt crisis: 
,austerity measures designed to reduce the government deficit (point 4)may have the undesired effect of intensifying the adverse feedback loop at point 5.The source of this danger is ________.

Quizplus · Accepted Answer

Austerity measures, such as cuts in government spending, can lead to a contraction of the macroeconomy, decreasing government revenue and potentially worsening economic conditions. This can lead to a decrease in investor confidence in the government's ability to meet its debt obligations, potentially intensifying the adverse feedback loop between government debt and economic conditions.

In This Causal Schematic of a Sovereign Debt Crisis