Types of Market Economy Understanding Demand Macroeconomic Policy and Demand

Macroeconomic Policy and Demand
Fiscal and monetary authorities, such as the Federal Reserve, devote much of their macroeconomic policy-making to managing aggregate demand.
If the Fed wants to reduce demand, it can raise interest rates and increase prices by curtailing the growth of the money supply and credit. If it needs to increase demand, the Fed can lower interest rates and increase the money supply, giving consumers and businesses more money to spend.1
In certain cases, even the Fed can’t fuel demand. When unemployment is on the rise, people may not be able to afford to spend or take on cheaper debt, even with low interest rates.
What Is Meant by Demand?
The economic principle of demand concerns the quantity of a particular product or service that consumers are willing to purchase at various prices. Demand looks at a market's pricing and purchases from a consumer's point of view. On the other hand, the principle of supply underscores the point of view of the supplier of the product or service.
What Is the Demand Curve?
The demand curve is a graphical representation of the law of demand. It plots prices on a chart. The line that connects those prices is the demand curve. The vertical axis represents prices of products. The horizontal axis represents product quantity. Typically, the curve starts on the left side high up the vertical axis and descends across the chart to the right. The slope indicates that as prices decrease, demand, as shown by growing number of products purchased, increases.
What Is the Importance of Demand?
Economically speaking, the principle of demand has importance for both consumers and businesses that sell products and/or services. For businesses, understanding demand is vital when making decisions about inventory, pricing, and aiming for a particular profit. Consumers who have an understanding of demand can make confident decisions about what products to buy and when to buy them.
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