What Is Effective Demand?

Effective demand is the aggregate social demand that is expected to bring the maximum amount of profit to the employer (enterprise). Effective demand is the aggregate social demand in which the total supply is equal to the total demand. (Investment expenditure), and determine the amount of social employment and national income. That is, the total social demand that is equal to the total social supply and thus in equilibrium. The concept of effective demand has emerged in the 1920s. In 1820, the British economist Malthus published "Principles of Political Economy", pointing out that due to insufficient social effective demand, there may be an economic crisis. In 1936, Keynes published The General Theory of Employment, Interest, and Currency, which re-emphasized the lack of effective demand and established a relatively complete theory of insufficient effective demand.

Effective demand

The bipolar world theory divides effective demand into domestic effective demand and international effective demand. Insufficient domestic effective demand is that people are relatively too poor in nature. This is the root cause of the economic crisis during the internal transformation period of the capitalist world system and belongs to the nature of external stress. Insufficient international effective demand is relatively rich capital in essence. This is the root cause of the economic crisis during the external expansion of the capitalist world system and belongs to the nature of internal stress ^[1]

Marx did not specifically discuss the theory of effective demand, but this idea is embedded in his famous

Data released recently by the Ministry of Industry and Information Technology shows that in 2013, the overall scale of China's information consumption reached 2.2 trillion yuan, an increase of more than 28% over the previous year. The steady growth of the information consumption market is an important manifestation of the steady upgrade of China's consumption structure.

In 2013, in the "troika" driving China's economic growth, the contribution rate of final consumption to GDP growth reached 50%. Against the background of sluggish external demand, rapid growth in domestic demand has become the main driving force for China's economic growth.

The new changes in the consumer sector have, to a certain extent, become a booster for the adjustment of the economic structure, especially the rapid development of the tertiary industry, with the service industry as the main body. In 2013, the tertiary industry accounted for more than the secondary industry in GDP for the first time, indicating that the tertiary industry has become an important force in building an upgraded version of the Chinese economy.

The internal structure of the secondary industry has also quietly changed. In 2013, the development of consumer and equipment manufacturing industries accelerated, and the expansion of the "two high" industries was gradually curbed, and China's structural adjustment achieved corresponding results.

On the whole, China's economic growth has gradually been driven by investment and exports, and it has been driven by consumption, investment, and exports.

In 2014, under the combined effect of various factors such as macro-control policies, the continuous improvement of the domestic demand structure and the continuous increase in effective demand will become a prominent highlight of macroeconomic development. However, we still see that the "troika" still faces many difficulties and problems.

For example, the high contribution rate of consumption to GDP in 2013 itself included the factors of sluggish exports. Various factors affecting the income distribution of residents cannot be eliminated in the short term, and these factors will greatly affect consumption growth. Investment growth is facing certain pressures, and the reform of the investment and financing system needs to be further deepened. Private capital investment faces problems such as "glass doors", "spring doors", "revolving doors", and high social financing costs, which remain to be resolved. In addition, this year's foreign trade situation remains uncertain, and so on.

In the face of these pressures and challenges, we must, on the premise of maintaining macroeconomic policy stability, demand impetus from reform, vitality from openness, and development potential from structural adjustment, thereby increasing effective demand and driving China's economic transformation and upgrading.

First, we must fully tap the consumption potential. It is necessary to coordinate and advance the implementation of the relevant implementation rules for deepening the reform of the income distribution system, and strive to strengthen the consumption capacity of residents, so that ordinary people can rest assured of consumption, and at the same time accelerate the cultivation of new consumption growth points, so that ordinary people are willing to consume.

Second, we must focus on maintaining stable investment growth. It is necessary to guide more funds to invest in shantytown renovation and supporting housing supporting infrastructure, high-standard farmland and rural people's livelihood construction, major infrastructure such as water conservancy, Midwest railways, major energy-saving emission reduction and environmental governance projects, and development and application of core key technologies, etc. Major independent innovation and transformation and upgrading projects, education, medical care, social endowment, food and drug safety, and other social undertakings and social management, and the development of ethnic minorities and border areas.

It should be noted that the key to stable investment is not to expand the investment scale, but to see whether the investment quality and structure are optimized and reasonable, and whether it is conducive to promoting structural adjustment, industrial upgrading, and economic transformation. We must resolutely curb overcapacity industries to launch new projects and accelerate the development of high-tech industries and modern service industries.

In addition, efforts should be made to expand external demand. In particular, it is necessary to optimize the import and export structure, and actively play the leading role of large complete sets of high-speed rail, nuclear power, communications and other related industries and service exports; increase the import of energy raw materials and domestic advanced technological equipment and key components; and relax the foreign investment market Into. Promote overseas investment of industries, support enterprises to "go global", and guide advantageous industries to "go global", forming a one-stop industrial chain from resource development to production and processing to marketing networks.