Keynes Thought That the Behavior of the Economy in the Short

question 41

Essay

Keynes thought that the behavior of the economy in the short run was influenced by what he called "animal spirits." By this he meant that business people sometimes felt good about the economy, and carried out lots of investment, and at other times felt bad about the economy, and so cut back on their investment spending. Explain how such fluctuations in investment would lead to fluctuations in real GDP and prices.

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Definitions:

Efferent Neurons

Nerves that carry messages outward from the central nervous system.

Parasympathetic Neurons

Nerve cells that are part of the parasympathetic nervous system, which helps in conserving energy and slowing down the heart rate.

Node of Ranvier

Gaps in the myelin sheath of nerve fibers which facilitate the rapid conduction of nerve impulses.

Dendrites

Branched extensions of a neuron that receive signals from other neurons and convey them toward the cell body.