Demand-side economics is a term used to describe the position that

economic growth In economics, economic growth is an increase in the quantity and quality of the economic goods and Service (economics), services that a society Production (economics), produces. It can be measured as the increase in the inflation-adjusted Outp ...

and

full employment Full employment is an economic situation in which there is no cyclical or deficient-demand unemployment. Full employment does not entail the disappearance of all unemployment, as other kinds of unemployment, namely structural and frictional, may ...

are most effectively created by high

demand In economics, demand is the quantity of a goods, good that consumers are willing and able to purchase at various prices during a given time. In economics "demand" for a commodity is not the same thing as "desire" for it. It refers to both the desi ...

for products and services. According to demand-side economics, output is determined by

effective demand Effectiveness or effectivity is the capability of producing a desired result or the ability to produce desired output. When something is deemed effective, it means it has an intended or expected outcome, or produces a deep, vivid impression. Et ...

. High

consumer spending Consumer spending is the total money spent on final goods and services by individuals and households. There are two components of consumer spending: induced consumption (which is affected by the level of income) and autonomous consumption (which ...

leads to business expansion, resulting in greater employment opportunities. Higher levels of employment create a multiplier effect that further stimulates

aggregate demand In economics, aggregate demand (AD) or domestic final demand (DFD) is the total demand for final goods and services in an economy at a given time. It is often called effective demand, though at other times this term is distinguished. This is the ...

, leading to greater economic growth. Proponents of demand-side economics argue that tax breaks for the wealthy produce little, if any, economic benefit because most of the additional money is not spent on goods or services but is reinvested in an economy with low demand (which makes speculative bubbles likely). Instead, they argue increased governmental spending will help to grow the economy by spurring additional employment opportunities. They cite the lessons of the

Great Depression The Great Depression was a severe global economic downturn from 1929 to 1939. The period was characterized by high rates of unemployment and poverty, drastic reductions in industrial production and international trade, and widespread bank and ...

of the 1930s as evidence that increased governmental spending spurs growth. Demand-side economics traces its origins to British economist

John Maynard Keynes John Maynard Keynes, 1st Baron Keynes ( ; 5 June 1883 – 21 April 1946), was an English economist and philosopher whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originall ...

. He argued there is no automatic stabilizing mechanism built into an economy, and that as a result state intervention is necessary to maintain output. Demand-side economics is contrasted with

supply-side economics Supply-side economics is a Macroeconomics, macroeconomic theory postulating that economic growth can be most effectively fostered by Tax cuts, lowering taxes, Deregulation, decreasing regulation, and allowing free trade. According to supply- ...

References

{{reflist Macroeconomic theories de:Nachfragepolitik fr:Politique de la demande

See also

References