In macroeconomics, demand-side policies are focused on changing the aggregate demand curve in the AD-AS model. The premise: short-term fluctuations in real GDP of the business cycle are due to actions of firms and consumers affecting aggregate demand and thus on inflationary and recessionary gaps. Demand-side policies try to counteract these effects.
Two main types of demand-side policies are:
- Fiscal policy, which are manipulations done by the government
- Monetary policy, which are manipulations done by central banks