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by notahacker 1993 days ago
The standard argument about the role of demand and credit is quite straightforward: the economy consists of people buying and selling stuff. Capital investment plays a supporting role in ensuring a supply of stuff for sale in future (and in distributing money to buy that stuff with), but people will invest more if they anticipate lots of demand to buy their stuff in future and less if they don't. Both demand and investment keep the economy going, but anticipated future demand is essential to investment.

Therefore when demand is low across the whole economy, there is a rationale for govts/central banks either to directly boost demand by spending or indirectly lower the costs of capital investment by lowering interest rates. The evidence for and against the efficacy of certain interventions is basically the entire field of macroeconomics, but Keynes' General Theory is the starting point and something like Woodford's Interest and Prices: Foundations of a Theory of Monetary Policy or most undergrad macroeconomics textbooks more reflective of current practice.

1 comments

Maybe there’s an argument from which markets move more quickly toward equilibrium. If you push the demand up for a slower part of it then the whole economy might tend to react more quickly than otherwise. Forgetting the specifics though.