Question

Economist John Maynard Keynes described people as having “Animal Spirits,” meaning that when individuals feel insecure about their job or income source they become more reserved and as a result accidentally cause negative outcomes to an economy. Describe how when individuals feel insecure it can create a “ripple effect” through the economy.

Answer 1

When the act of a certain entity or individual(s) has a bearing on the working of other entities/individual(s), it can be termed a Ripple Effect in Economics. For instance, when one individual chooses not to spend, will lead to a reduction in income of others and consequently causes a fall in their spending. And in the same way if the employees are insecure about their jobs, they become less productive or creative because they become anxious or depressed which in turn can affect the entity they are working for, or in other words it is because of the decreased work performance of the individuals that can leave bad influence on the government and corporate policy.