demand-side economics

{{short description|Term in Macroeconomics theory}}

Demand-side economics is a term used to describe the position that economic growth and full employment are most effectively created by high demand for products and services.{{cite journal |last1=Kalecki |first1=Michael |title=Political Aspects of Full Employment |journal=Political Quarterly |date=1943 |volume=14 |issue=4 |pages=322–331|doi=10.1111/j.1467-923X.1943.tb01016.x }} According to demand-side economics, output is determined by effective demand. High consumer spending leads to business expansion, resulting in greater employment opportunities. Higher levels of employment create a multiplier effect{{cite journal |last1=Kahn |first1=R. F. |title=The Relation of Home Invest to Unemployment |journal=Economic Journal |date=1931 |volume=41 |issue=162 |pages=1730–0198 |doi=10.2307/2223697 |url=https://academic.oup.com/ej/article/41/162/173/5266960?searchresult=1 |access-date=30 January 2019|jstor=2223697 }} that further stimulates aggregate demand, leading to greater economic growth.{{Cite book|title=The Gardens of Democracy|last=Liu|first=Eric|last2=Hanauer|first2=Nick|publisher=Sasquatch Books|year=2011|isbn=978-1-57061-823-9|location=Seattle, WA|pages=11}}

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.{{cite book|last1=McEachern|first1=William|title=Economics: A Contemporary Introduction|date=2009|publisher=Southwest Cengage Learning|location=Mason, OH|isbn=978-0-324-57921-5|page=430|edition=Eighth}} They cite the lessons of the Great Depression of the 1930s as evidence that increased governmental spending spurs growth.{{cite web |last1=Eggertsson |first1=Gauti |title=Great Expectations and the End of the Depression |url=https://www.newyorkfed.org/medialibrary/media/research/staff_reports/sr234.pdf |website=newyorkfed.org |publisher=Federal Reserve Bank of New York Staff Reports |access-date=25 November 2019}}

Demand-side economics traces its origins to British economist John Maynard Keynes. He argued there is no automatic stabilizing mechanism built into an economy, and that as a result state intervention is necessary to maintain output.{{cite web |last1=Keynes |first1=J. M. |title=A Monetary Theory of Production |url=https://www.hetwebsite.net/het/texts/keynes/keynes1933mtp.htm |website=The History of Economic Thought |publisher=Institute for New Economic Thinking |access-date=30 January 2019}}

Demand-side economics is contrasted with supply-side economics.