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.[1] 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[2] that further stimulates aggregate demand, leading to greater economic growth.[3]

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.[4] They cite the lessons of the Great Depression of the 1930s as evidence that increased governmental spending spurs growth.[5]

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.[6]

See also


  1. ^ Kalecki, Michael (1943). "Political Aspects of Full Employment". Political Quarterly. 14 (4): 322–331. doi:10.1111/j.1467-923X.1943.tb01016.x.
  2. ^ Kahn, R. F. (1931). "The Relation of Home Invest to Unemployment". Economic Journal. 41 (162): 1730–0198. doi:10.2307/2223697. JSTOR 2223697. Retrieved 30 January 2019.
  3. ^ Liu, Eric; Hanauer, Nick (2011). The Gardens of Democracy. Seattle, WA: Sasquatch Books. p. 11. ISBN 978-1-57061-823-9.
  4. ^ McEachern, William (2009). Economics: A Contemporary Introduction (Eighth ed.). Mason, OH: Southwest Cengage Learning. p. 430. ISBN 978-0-324-57921-5.
  5. ^ Eggertsson, Gauti. "Great Expectations and the End of the Depression" (PDF). Federal Reserve Bank of New York Staff Reports. Retrieved 25 November 2019.
  6. ^ Keynes, J. M. "A Monetary Theory of Production". The History of Economic Thought. Institute for New Economic Thinking. Retrieved 30 January 2019.