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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.
a. Using a relevant graph, explain how such fluctuations in investment would lead to fluctuations in real GDP and prices.
b. Using another graph, explain a policy that can be implemented by the central bank when business people feel too good about the economy
c. Using another graph, explain a policy that can be implemented by the president and Congress when people feel bad about the economy
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Elucidate how these economic concepts can be used to address the firm's problems and opportunities.
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