Domestic (or domestic) demand is used when there is strong demand for products within one's own country or economic system. Domestic demand rises when consumers decide to invest their money.
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Influencing factors wages and labor costs
In addition to numerous other factors, labor costs have the greatest impact on domestic demand and have a twofold impact on it.
Rising wages - Due to rising wages, the domestic demand for goods also rises at the same time, because the population consume more due to the higher financial means available to them.
Rising labor costs - However, rising wages also result in increased wage costs, which has a direct negative impact on companies' willingness to invest. Companies are investing less or relocating their production abroad, which reduces domestic demand for capital goods.
Government demand and domestic demand
A not irrelevant part of domestic demand is caused by government demand. This includes all state expenditures and investments such as building schools and airports or supplying the police and fire brigade with material.
Public debt can also lead to an increase in domestic demand in the short term, as the state can invest again with the money it borrows.
In the long term, however, the national debt leads to a high interest burden, which severely restricts the state's finances. The necessary austerity measures ultimately lead to a decline in domestic demand.