John Maynard Keynes described periods of irrational pessimism and optimism that affect the investment behaviour of firms as animal spirits.When considering the investment behaviour of firms,animal spirits can be thought of as changes in the
A) actual marginal product of capital.
B) capital stock.
C) expected marginal product of capital.
D) user cost of capital.

Question

Quizplus · Accepted Answer

Animal spirits refer to changes in investors' confidence and expectations, which can lead to shifts in investment behavior. These shifts are more likely to be driven by changes in the expected marginal product of capital rather than the actual marginal product of capital or the user cost of capital. Therefore, option C is the best choice as the expected marginal product of capital captures the changes in investor confidence that are associated with animal spirits.

John Maynard Keynes Described Periods of Irrational Pessimism and Optimism