Domestic demand

The term domestic demand (also domestic demand ) describes the demand for consumer and capital goods within a single market and thus part of the total demand . Domestic demand is to be distinguished from export demand , which describes demand from abroad .

Components

According to the aggregate demand formula, domestic demand consists of consumer goods demand, capital goods demand, and government demand.

The demand for capital goods is primarily generated where the costs are cheapest. Relevant here are, among other things, wage costs, which induce companies, for example, to no longer invest in the developed industrial countries (e.g. Germany , USA , Great Britain ) but in the economically emerging countries of Eastern Europe and Asia.

Macroeconomic and political importance

The economic importance of consumer and capital goods demand will vary strongly emphasized depending on the economic school of thought. The Keynesian theory emphasizes the importance of macroeconomic demand (and thus consumer goods demand in particular) for the development of the economy as a whole, while the neoclassical theory assumes the validity of Say's theorem and thus attaches less macroeconomic importance to the demand for capital goods. The synthesis attempted in modern economic theory regards the development of domestic demand, at least in the short term, as fundamental for the cyclical development of an economy.

Due to its time horizon, domestic demand is an important target of economic policy. Therefore, the effects of certain economic policy decisions on domestic demand are often a decision-relevant target in the political process.

Labor costs and domestic demand

Domestic demand is particularly important in discussions about wage costs . On the one hand, lower wages lower the cost of goods or services and thus make them more attractive for export through lower prices. But since these wages again form the basis for demand in the domestic market, a reduction in wages can at the same time reduce demand for consumer goods. On the other hand, lower wages also mean that companies can offer more jobs, which means that the overall wage bill may not fall, and neither does domestic demand.

The influence on the demand for capital goods is also discussed controversially. Here, too, it should be noted that the level of wage costs is only one of many factors that determine demand. Other factors that influence decisions about the location and amount of investment include the availability of qualified employees, the existing infrastructure, tax and subsidy policy , the legal situation and security and the exchange rate risk .

National Debt and Domestic Demand

Domestic demand also plays an important role in the discussion about the macroeconomic significance of national debt . Higher debt leads directly to rising domestic demand via higher government demand, but in the long term, a high level of government debt leads to reduced government demand via the increased interest burden and thus to a decline in domestic demand.