Definition
- Demand-side policy
- Demand-side policy is fiscal or monetary policy used to shift aggregate demand so that output moves towards potential GDP.
- Not to be confused with: Supply-side policy
- Supply-side policy is government action to raise potential GDP by increasing the quantity or productivity of the economy's labour, capital and technology.
Test yourself
What is the difference between demand-side policy and supply-side policy?
Supply-side policy adds to productive capacity; demand-side policy changes how much of existing capacity is used.