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Demand side economics is based on the belief that the main force affecting overall economic activity and causing short-term fluctuations is consumer demand for goods and services. Sometimes called Keynesian economics, demand side economics developed in response to the Great Depression when conventional supply side economics failed to adequately explain why the mechanisms of the free market was seemingly unable to self-correct or restore balance to the economy as previously expected.

In opposition to classical theories of economics that theorize economic activity is stimulated by increasing net wealth, leading to investment in providing increased supplies. Demand side economics claims that economic activity is best boosted by increasing the buying power of the lower and middle classes, thus increasing the demand for goods and services.

At the core of demand side economics is the focus on aggregate demand. Aggregate demand is the combination of consumption of goods, industry investment in capital goods, government spending and net exports. When other elements of aggregate demand are weak, the government can mitigate their impact by increasing its spending. The government can intervene to generate demand for goods and services.

Demand side economists support heavy government spending during a national recession to overcome the short-term low aggregate demand. Raising the market's aggregate demand will reduce unemployment and encourage economic activity, according to this theory. The government increases demand through spending on public goods and services as well as through its control of the money supply through altering interest rates or trading on government-issued bonds.

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