What is a demand side/driven economic model and how is it related to Keynesianism and a purer version of the Free Market?

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What is a demand side/driven economic model and how is it related to Keynesianism and a purer version of the Free Market?

In: Economics

Demand-side economics contrasts with supply side economics. Supply side economics theorizes that, by increasing the quantity/supply of goods, the economy will become more active. People will buy more stuff since it’s cheap, which means there will be more jobs. Supply side economics says this can be achieved by stimulating corporate growth with low taxes and less regulation; companies will have more money to expand and produce goods, ensuring that low supply.

Demand side economics differs in the approach. It theorizes that increasing demand for goods is what drives economic growth. If more people are trying to buy stuff, then companies will expand to meet the demand. Demand side economics favors lowering taxes for consumers; consumers with more money will buy more stuff, increasing demand.

Keynesian economics says that government intervention in the economy is necessary, as the economy is not an inherently stable phenomenon. Highs and lows of the market can cause severe problems in the rest of the economy, and the government should step in to reduce the negative impact of these cycles.

Bailouts are a very typical example of Keynesian economics. Who gets bailed out is up to supply or demand side economics. If the government favors supply side, they may bail out companies to allow them to keep running their businesses. If they favor demand side, they may bail out consumers so they can continue to buy goods and services from whatever companies, keeping them in business.