The term animal spirit was innovated by John Maynard Keynes and it indicate the internal urge for action by business people and consumers to engage in more investment and consumption. Hence animal spirit is the psychological urge to get into more economic activities by investors and consumers.
Keynes explains the concept in this book General Theory: “Most, probably, of our decisions to do something positive, the full consequences of which will be drawn out over many days to come, can only be taken as the result of animal spirits – a spontaneous urge to action rather than inaction.”
What is the significance of animal spirit in overcoming recession?
Most important aspect about animal spirits is that it is economic optimism and confidence that drives investors to make more investment even when there is uncertainly. This means that even if the economic environment is not good, if animal spirits is activated, higher investment can occur. In recent years, animal spirit is frequently used because increased investment is necessary to rejuvenate economies from recession.
This urge out of confidence will lead them to make more investment and more consumption even if the economy is in uncertainty. As a result of this higher investment, the economy can come out of a recession or slow down. Animal spirit shows how human psychology drives the economy.