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Encyclopedia > Demand management

Demand Management is the art or science of controlling economic demand to avoid a recession. The supply and demand model describes how prices vary as a result of a balance between product availability at each price (supply) and the desires of those with purchasing power at each price (demand). ... A recession is usually defined in macroeconomics as a fall of a countrys real Gross Domestic Product in two or more successive quarters of a year. ...


It is inspired by Keynesian macroeconomics, though today elements of it are part of the economic mainstream. John Maynard Keynes John Maynard Keynes [ˈkeɪns], 1st Baron Keynes of Tilton (June 5, 1883 - April 21, 1946) was an English economist, whose radical ideas had a major impact on modern economic and political thought. ... Macroeconomics is the economics sub-field of study that considers aggregate behavior, and the study of the sum of individual economic decisions. ...


The underlying idea is for the government to use tools like interest rates, taxation, and public expenditure to change key economic decisions like consumption, investment, the balance of trade, and public sector borrowing resulting in an 'evening out' of the business cycle. An interest rate is the price a borrower pays for the use of money he does not own, and the return a lender receives for deferring his consumption, by lending to the borrower. ... Public finance (government finance) is the field of economics that deals with budgeting the revenues and expenditures of a public sector entity, usually government. ... In Keynesian economics consumption refers to personal consumption expenditure, i. ... Invest redirects here. ... Balance of trade figures, also called net exports (NX), are the sum of the money gained by a given economy by selling exports, minus the cost of buying imports. ... A budget deficit occurs when an entity (often a government) spends more money than it takes in. ...


Demand management was widely adopted in the 1950s to 1970s, and was for a time successful. However, it is widely regarded as a force behind the stagflation of the 1970s. Stagflation is a term in macroeconomics used to describe a period characteristic of high inflation combined with economic stagnation, unemployment, or economic recession. ...


Theoretical criticisms of demand management are that it relies on a long-run Phillips Curve which there is no evidence for, and that it produces dynamic inconsistency and can therefore be non-credible. In macroeconomics, the Phillips curve is a supposed inverse relationship between inflation and unemployment. ... A policy is a plan of action to guide decisions and actions. ...


Today, most governments relatively limit interventions in demand management to tackling short-term crises, and rely on policies like independent central banks and fiscal policy rules to prevent long-run economic disruption. Reserve Bank of India in Mumbai, India. ... A fiscal rule adopted by Chancellor of the Exchequer, Gordon Brown for HM Treasury in the UK to provide a guideline for the operation of fiscal policy. ...


 
 

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