The measurement and significance of changes in business confidence are explored in this short revision video.
Business confidence describes the forward-looking expectations of firms. Keynes coined the term “animal spirits” to describe the fluctuating confidence / pessimism of investors and businesses. Animal spirits refer to emotional mindsets of businesses and consumers.
Business confidence usually measured by survey. Firms are asked about their expectations for the next 6-12 months. Businesses are also surveyed about strength/weakness of their domestic and export order books.
They are asked whether they plan to raise prices and asked about their plans for employment in the months ahead.
All surveys are subject to sample error & might not cover all sectors of the economy
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