What is Demand Side Economics?

Demand side economics is a school of economic thought introduced by John Meynard Keynes, that argues the economic growth is directly proportionate to the demand for products and services. 

Demand-side economics contradicts the classical economic theory, supply-side economics that asserts economic growth depends on the production and supply of goods and services.

Who Developed the Theory of Demand-Side Economics

John Maynard Keynes shaped this theory after the 1930s great depression in response to the economic crisis. 

Demand Leads to Economic Growth?

Keynes argued the growth of economy does not rely on the supply of the products, rather it is the demand in the market that stimulates the growth. 

Keynes explained, during the great depression the workers were unemployed, and factories were idle because there were no demands for the products. As the products were not sold in the market, the manufacturers stopped producing those goods thus the workers were not needed. 

Keynes argued in this situation the market cannot reestablish the balance without creating demands. Keynes advocated for government intervention in creating the market demand during recession or depression for promoting growth. Keynes’ theory shifted the paradigm of economic study from supply to demand. 

Demand-Side Economics and Government? 

Keynesian economists argue, if there is a lack of demand in the market and people are unable to buy goods, the government can intervene by altering interest rates or selling or buying government-issued bond, in other words by pushing more money into the market. 

Keynesians believe that Government intervention would increase the buying capacity of the consumers which in effect will increase the demand in the market. 

Once the demand is on the rise the manufacturers would be interested to produce more goods and that would generate employment.

Related Topics

• Supply-Side Economics
• Say’s Law
• Laffer Curve
• Neo-Classical Economics
• New Keynesian Economics
• Classical Economics
• Supply-Side Economics
• Keynesian Economics
• Keynes’ Law
• Keynesian Analysis
• Demand Side Theory
• Market Forces
• Aggregate demand
  
• Aggregate Demand Curve (and shifts)
• Aggregate supply
• Aggregate Supply Curve (and Shifts)
• Aggregate Demand / Aggregate Supply Models
• Potential GDP
• Aggregate Supply and Demand Equilibrium
• Aggregate Supply and Aggregate Demand in Macroeconomics and Microeconomics
• Input-Output Model
• Stagflation
• Growth and Recessions in the Aggregate Demand – Aggregate Supply Model
• Unemployment in the Aggregate Demand – Aggregate Supply Model
• Inflation in the Aggregate Demand – Aggregate Supply Model
• Keynesian, Intermediate, and Neoclassical Zones