Question

Which of the following is an example of a positive feedback loop?Group of answer choices

a. When consumption spending decreases, firms increase investment spending to keep GDP from falling.

b. The Government increases its spending when the economy is in a recession.

c Real GDP growth reaches its peak in the business cycle and "animal spirits" cause growth rates to decrease.

d.Firms decrease investment when real GDP growth is negative.

Answer 1

An example of a positive feedback loop among the given choices is

b. The government increases its spending when the economy is in recession.

Because during recession period, when the economy needs a boost the government increases its expenditures or reduces taxes so that the aggregate demand increases and hence there is also an increase in production and employment level. Therefore, this is an example of positive feedback loop.

The rest of the options don’t fit for the example of positive feedback loop as because in

(a) If consumption spending will decrease then the GDP will fall. GDP is a composition of Consumption, Investment, Govt. Expenditure and (Export-Import).

(c) Is not an example of positive feedback loop. Because it is not a positive effect that the “animal spirits”lead to

(d) Decrease in investment too can’t be an example of positive feedback loop. Because this is leading to a negative GDP growth.