Domestic demand is an economic indicator that shows the level of consumption of goods and services in a country, whether in the sector, public or private, in an economy over a period specific. This demand generally increases when the consumer confidence rate is high and decreases when the security index is low.
There are countries where economic growth is beneficial, they already have a low unemployment rate, therefore, the domestic demand of those nations will be higher. That is why many governments seek to focus on internal demand being for products made in the country itself and to achieve this they must draw up strategies that have the purpose of substituting exports for national production of those products whose import is high.
Domestic demand is made up of: Consumption (C), Expenditure (G) and Investment (I). Expressing itself in the following way:
Internal Demand (DI) = Consumption (C) + Expenditure (G) + Investment (I)
Consumption: it is made up of all the expenses that families make and that include: food, housing rentals, clothing, footwear, health, leisure, etc. With the exception of home purchases.
Expenditure: groups the expenses incurred by public administrations of different levels: central, regional and local administrations. These expenses cover everything related to the salaries of administration workers and all expenses related to the execution of public works.
Investment: investment includes the purchase of goods in order to be able to use them in the future in production processes that manufacture new goods and services. For example: purchase of buildings and machinery. Installation of inventories.
Faced with the severe global economic crisis that has occurred in recent years, external markets are shrinking, as many countries tend to reduce their imports, precisely because of the crisis and because of fear of continuing to invest and consume. In situations like these, countries choose to increase domestic demand, so that it replaces what external demand has left behind.
It is obvious that if the business sector cannot locate an external market in which to place its products, it will have to figure out how to place those products in the internal market. However, in order to achieve this, the country must have an economy that offers optimal conditions for this; otherwise, the population will not be able to absorb what was stopped exporting.
In times of crisis, it is best to strengthen domestic consumption and this can be achieved by applying policies aimed at ensuring that the population has a reasonable income that allows it to increase its consumption.
