Historic Example of Labor Supply and Demand
Labor and unemployment rates, supply law requires that with a higher wage rate, people would be willing to work. Demand law on the other hand requires that with high wages lesser employees are present hence bringing about voluntary unemployment (Bernanke, Jan 5, 2004). On the other hand, employers react to low wages through adding more numbers in their employees at a cheaper wage rate. The employers desire to make more money so as have more employees.
Suppliers on the other hand are willing to borrow money at a lower interest rate. This is in line with the laws of supply. On the other hand demand states that people and business will keen to borrow more money as a cheaper interest rate. It is hence in this time of the depression that funds were loaned out in huge numbers. People were keen in saving more of their money while the business had no intention to borrow this money. This resulted to the surplus. With the desire to acquire equilibrium, the interest rates for the borrowers had to be decreased to acquire the demand. However, the economy was low making people to be cautious with the money and not engage in money that they are not able to return.
With a fall of the stock market, people lost money; demand crashed hence decreasing the equilibrium and elevating the surplus of goods and services (Michelle, Sep 4, 2006). This meant a decrease in the prices resulted to improved wealth of people as well as the aggregate demand. On the other hand, this led to loss of employment with limited desire for services. This led to affecting other factors of the economy leading to the Great Depression. Each and every market is controlled by the laws of supply and demand. The alteration after the crash in 1929 was quite serious that the economy had no time to correct itself.
Bibliography
Bernanke, B. (Jan 5, 2004). Essays on the Great Depression. New Jersey: Princeton University Press.
Michelle, H. (Sep 4, 2006). The Laws of Supply and Demand, Classical Economists, and the Great Depression. Yahoo!
