The total spending on goods and services in an economy at various price levels, including consumption, investment, government expenditures, and net exports. Keynes emphasizes the importance of aggregate demand as a primary driver of employment and output, challenging the view that supply alone dictates economic activity. By highlighting aggregate demand, Keynes underscores the pivotal role of consumer confidence and investment decisions in determining overall economic health.

Keynes coined this phrase to describe the psychological and emotional factors that influence consumer and investor behavior beyond rational calculation. Instincts such as optimism or fear can trigger significant fluctuations in investment and consumption, affecting the business cycle and economic stability. In emphasizing “animal spirits,” Keynes draws attention to the inherently unpredictable nature of markets and the need for policies that can help moderate collective swings in confidence.

The General Theory is written against the earlier prevailing school of thought that assumed markets are self-correcting through flexible prices and wages. Keynes challenges this framework by asserting that involuntary unemployment can persist if aggregate demand is insufficient. By critiquing classical assumptions, Keynes lays the groundwork for a fundamentally new way of understanding how and why recessions occur, as well as how governments can combat them.