2.3. INVESTMENT "ANIMAL SPIRIT"
John Maynard Keynes created the term “animal spirit” in 1936 to describe how human emotion drives consumer confidence. The idea is that economic agents make predictions about the future and act on these predictions. If they believe that the future is looking positive, consumers will likely spend a greater proportion of their income and firms will start investing more. However, if confidence is low for economic agents, then consumers will likely spend a lower proportion of their income and save more. Also, firms will probably reduce their level of investment and instead focus on survival. Keynes was trying to use “animal spirit” to say that just looking at raw economic data is not enough to measure how well an economy is doing. Instead, other forms of data such as business confidence and forecasts should be used in addition to the (normal) raw economic data that we tend to use (GDP, unemployment etc.).