demandstimulus

Demandstimulus refers to policy measures intended to raise aggregate demand in an economy, offsetting shortfalls in spending during downturns. It encompasses fiscal stimulus, such as government spending and tax changes, and monetary stimulus, including interest-rate reductions and asset purchases. The term is often used in macroeconomic discussions on stabilizing demand and avoiding deflationary spirals.

Fiscal stimulus involves discretionary government spending and tax relief aimed at increasing households' disposable income or directly boosting demand through public projects, transfers, or subsidies. Multipliers capture the additional economic activity generated by each unit of spending, though the size of the multiplier varies with slack, openness, and financing.

Monetary stimulus lowers the cost of borrowing and encourages lending and investment through central-bank actions such as lowering policy rates, quantitative easing, and forward guidance. In open economies, exchange-rate effects and global capital flows can influence the overall impact, and effectiveness may be reduced if financial institutions are unwilling to lend or borrowers face high debt burdens.

Automatic stabilizers (tax revenues, unemployment benefits) provide a built-in demand boost during downturns, while discretionary demand stimulus relies on policymakers. The policy mix, timing, and phasing are critical; mis-timing can aggravate inflation, debt levels, or overheating.

Historical episodes include emergency spending during recessions and crises, notably the response to the 2008 financial crisis and the COVID-19 pandemic. Supporters argue demand stimulus can stabilize output and employment, while critics warn of inflation risk, resource misallocation, and rising debt unless offset by other reforms or revenue enhancements.

See also: fiscal policy, monetary policy, automatic stabilizers, Keynesian economics, quantitative easing.