1) Demand-side policies refer to economic strategies that aim to stimulate economic growth by

focusing on aggregate demand . According to Keynesian economics , the demand for goods and
services is the primary driver of economic activity and short-term fluctuations. Demand-side policies
can be implemented through fiscal policy and monetary policy .

- Fiscal policy involves changes in government spending and taxation. By increasing government
spending on infrastructure projects, social programs, and other initiatives, demand for goods and
services can be boosted. Tax cuts and transfer payments can also provide individuals and businesses
with more money to spend, further stimulating demand.

- Monetary policy focuses on controlling the availability of credit and its price. Central banks can
influence monetary policy by adjusting interest rates, which affects borrowing costs and consumer
spending. Lower interest rates encourage borrowing and investment, leading to increased demand.

For example, during a recession or depression, demand-side policies can help overcome low
aggregate demand. By increasing government spending and lowering taxes, governments aim to
stimulate consumption and business investment, reducing unemployment and promoting economic
growth.

2) While expansionary fiscal policy can be effective in stimulating economic growth, it also has
limitations and potential negative impacts:

- Inflationary pressure : Expansionary fiscal policy, such as increasing government spending or

cutting taxes, can lead to an increase in the money supply. This can potentially cause inflationary
pressure, as more money chases the same amount of goods and services.

- Budget deficits : Implementing expansionary fiscal policy often requires increased government
spending, which can result in budget deficits. Accumulating high levels of public debt can have long-
term consequences, such as higher interest payments and reduced fiscal flexibility.

- Crowding out private investment : When the government increases its borrowing to finance
expansionary fiscal policy, it competes with private borrowers for available funds. This can lead to
higher interest rates, making it more expensive for businesses and individuals to borrow and invest.

- Potential inefficiency : Expansionary fiscal policy relies on the government's ability to allocate
resources effectively. Inefficient spending or misallocation of funds can reduce the overall
effectiveness of the policy and fail to achieve the desired economic outcomes.
It's important to note that the effectiveness and potential negative impacts of expansionary fiscal
policy can vary depending on the specific economic context and the implementation of the policy.