Demand-side economics is a term used to describe the position that
economic growth and
full employment are most effectively created by high
demand
In economics, demand is the quantity of a good that consumers are willing and able to purchase at various prices during a given time. The relationship between price and quantity demand is also called the demand curve. Demand for a specific item ...
for products and services. According to demand-side economics, output is determined by
effective demand
In economics, effective demand (ED) in a market is the demand for a product or service which occurs when purchasers are constrained in a different market. It contrasts with notional demand, which is the demand that occurs when purchasers are not ...
. 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
In macroeconomics, a multiplier is a factor of proportionality that measures how much an endogenous variable changes in response to a change in some exogenous variable.
For example, suppose variable ''x''
changes by ''k'' units, which causes an ...
that further stimulates
aggregate demand, 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 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 whose ideas fundamentally changed the theory and practice of macroeconomics and the economic policies of governments. Originally trained in ...
. He argued there is no automatic stabilizing mechanism built into an economy, and that as a result state intervention is necessary to maintain output.
See also
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Fiscal policy
In economics and political science, fiscal policy is the use of government revenue collection (taxes or tax cuts) and expenditure to influence a country's economy. The use of government revenue expenditures to influence macroeconomic variab ...
*
Keynesian economics
Keynesian economics ( ; sometimes Keynesianism, named after British economist John Maynard Keynes) are the various macroeconomic theories and models of how aggregate demand (total spending in the economy) strongly influences economic output a ...
*
New Deal
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Obamanomics
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Public works
Public works are a broad category of infrastructure projects, financed and constructed by the government, for recreational, employment, and health and safety uses in the greater community. They include public buildings ( municipal buildings, sc ...
*
Supply-side economics
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Trickle-up effect
*
Universal Basic Income
Universal basic income (UBI) is a social welfare proposal in which all citizens of a given population regularly receive an unconditional transfer payment, that is, without a means test or need to work. It would be received independently of a ...
References
{{reflist
Macroeconomic theories
de:Nachfragepolitik
fr:Politique de la demande