Animal Spirits and Rationality

Sheila Dow and Alexander Dow

Chapter 3 in Foundations for New Economic Thinking, 2012, pp 33-51 from Palgrave Macmillan

Abstract: Abstract The notion that ‘animal spirits’ govern investment decisions can be viewed as being central to Keynes’s theory of aggregate demand and, at the same time, as being its weakest point. An autonomous shift in long-run expectations among entrepreneurs can drive a wedge between effective demand and full employment output, requiring government stabilisation policy if full employment is to be achieved. That shifts in long-run expectations may occur autonomously is, however, regarded by many as cause for concern. If Keynes’s theory can neither explain nor predict these shifts, then it appears to be lacking a crucial element.

Keywords: Money Supply; Rational Expectation; Methodological Framework; Rational Belief; Economic Thinking (search for similar items in EconPapers)
Date: 2012
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Persistent link: https://EconPapers.repec.org/RePEc:pal:palchp:978-1-137-00072-9_3

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DOI: 10.1057/9781137000729_3

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