Question

2) Already the electronics retailer Circuit City has filed for bankruptcy, and General Motors has said that it is in danger or running out of cash. If the consumer slump continues, there is a potential for a dangerous feedback loop, in which spending cuts and layoffs reinforce each other. What terminology do economists use to refer to this phenomenon?

Answer 1

Question 2

The given statement indicates that initial fall in consumer demand leads to lower production by firms resulting in job losses which further declines income leading to more decline in consumer demand are further cut in production and job losses.

This loop remains continue.

So, initial decline in consumer demand leads to much greater decline in overall consumer demand.

When the initial change in variable leads to much larger total overall change then such process is termed as multiplier process.

Thus,

The given scenario is referred to as multiplier process by the economists.