Final answer:
John Maynard Keynes used the term 'animal spirits' to describe the emotional aspect of human behavior that affects economic decisions. Keynesian economics asserts that during times of low aggregate demand, such as the Great Depression, government intervention in the form of increased spending is necessary, even if it involves unconventional methods.
Step-by-step explanation:
John Maynard Keynes, a renowned British economist, discussed the concept of “animal spirits” in the context of economic activity, particularly during a depression. In his work, Keynes used the term “animal spirits” to describe the human emotions driving consumer and investor behavior, which can, at times, lead to irrational economic decisions. His notion of “animal spirits” is one facet of his broader economic theory, which posited that insufficient aggregate demand could result in high unemployment and underproduction, even if there were available labor and capital. During economic downturns like the Great Depression, Keynes argued that the government should step in to boost aggregate demand. This could be accomplished through increased spending and investment, even if it meant pursuing less conventional or seemingly impractical methods, such as the government funding the construction of monuments or burying money for mining companies to excavate. These ideas are incorporated into what is known today as Keynesian economics.
Keynes was suggesting that during the Great Depression, when the private sector spending plummeted, and neither households nor businesses were spending enough to maintain production and employment, government spending could take up the slack. His approach suggested that as long as such spending injected money into the economy and increased aggregate demand, the specifics of the expenditure were less critical than the act of spending itself. This idea forms a core principle of Keynesian economic theory—that active fiscal policy can help counteract economic downturns and stabilize an economy experiencing a lack of demand.