Definition of feedback loop

A feedback loop is a term commonly used in economics to refer to a situation where part of the output of a situation is used for new input. An example of a positive feedback loop would be one where success feeds success. A company could make money which is then reinvested in activities which lead to more income generation. Likewise a population with rising income per capita, spends more money which in turns leads to rising income per capita. 

A negative feedback loop is strictly speaking one that brings about a situation which is self regulating. For example, a population of lions grows and eats much of its available prey. There is then a shortage of food for the lions which causes a reduction in the lions' population and allows a resurgence in the populations of the animals they hunt.


examples of feedback loop in the news

An economist interviewed by the FT on the US housing market in January 2013 was talking about the beginning of a reversal of the house price crash in hard-hit areas such as Florida. If house buyers regained enough equity they would be able to jump from interest rates that they locked into before the house price crash of 6-7 per cent and be able to refinance at current levels of 3.5 per cent. Households that manage to refinance will be able to consume more. "There's going to be a positive feedback loop that will help refinancing, help home sales and have a wealth effect," the economist said.

Also in January 2013 there were signs that a severe drought would persist in certain areas of the United States. A forecaster at a climate research institute commented that drought tends to intensify because moisture tends to evapourate more quickly than it would do from saturated ground. "There's a positive feedback loop, unfortunately, for drought," the forecaster commented.

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