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

According to the causal schematic, point 3 is the point where the adverse feedback loop begins, with increasing yields leading to a loss of investor confidence and further increasing yields. Liquidity support from a central bank, as indicated in the schematic, attempts to break this loop at point 3 by providing funding to keep yields from spiraling out of control. Therefore, the correct choice is B.

In This Causal Schematic of a Sovereign Debt Crisis