Domestic demand

Domestic demand - (also internal demand) an economic term that refers to the total quantity of money that is spent on products and services by the firms, people and government within a specific country, or that would be spent if the services industry and manufactures were accessible . Demand from within a particular country, not from abroad.

• Final domestic demand is private consumption plus gross fixed investment plus government consumption. Total domestic demand is the final domestic demand plus stock building.
• Every now and then economists and scientists pertain to total final expending. This is the final domestic demand plus exports of manufactures and services (G.Tsagkarakis, 2015).

Factors impact upon demand

The demand for home goods depends on three dimensions. The first one is world consumption, which affects not only the scale of external demand for home produce but for that matter domestic demand and consumption. The other variable is the world relative price of home manufactures. This valuation affects foreign demand for home manufactures and it can affect the domestic demand, depending on the real rate of exchange, which is the third factor. Note that, given the world relative price of home commodities, the real exchange rate may reduce or increase (R. Chang, Mr. L.A.V. Catão 2010, pages 18 and 19).

The negative impact of a expansion in export merchandise prices

The surge in export incoming is spent chiefly on nontradable manufactures resulting in increased domestic demand, an appreciation of the real rate of exchange and an aggravation in the finances of the tradable sector (except for the segment enjoying the price surge). Notwithstanding, in the case of intensified government operations, the resource of increased domestic demand is internal and leads to a loss is domestic retrenchments and higher domestic rate of interest ; the resulting inflow of short-range capital is an additional source of nervousness for the economy (E.Kalter, A.P. Ribas 1999 page 7).

Domestic demand — recommended articles

Over-valued currency — Inflation import — Cost inflation — Economic factors affecting business — Closed economy — Global demand — Government expenditure — Economic factor — Globalization

References

• Bakker B. B., Gulde A. M., (2010) The Credit Boom in the EU New Member States: Bad Luck or Bad Policies?, International Monetary Fund
• Catao L.A.V., Change R. (2010), World Food Prices and Monetary Policy, International Monetary Fund
• Clark P. B., Bayoumi T., Bartolini L., (1994), Exchange Rates and Economic Fundamentals: A Framework for Analysis, International Monetary Fund
• Kalter E., Ribas A. P. (1999) The 1994 Mexican Economic Crisis: The Role of Government Expenditure and Relative Prices , International Monetary Fund, Buenos Aires
• Soares Esteves P., Rua A. (2013), Is There a Role for Domestic Demand Pressure on Export Performance?, European Central Bank
• Tsagkarakis G. (2015), Domestic Demand and Network Management in a User-inclusive Electrical Load Modelling Framework, University of Edinburgh, Edinburgh

Author: Edyta Pach