The stock market crash does not only affect the demand in the market. The aggregate supply in the market is also affected due to the decreasing trend showed by the demand. The decrease in demand pulls the supply to decrease in the market as well as the economy slows down into a recession. In such a situation the firms operating in the market and supplied goods and services are forced to cut down on costs in order to operate at the low price which is reflected due to the new demand and supply equilibrium and still earn profit. The cost cutting can directly affect the employment rate in the company as more and more firms tend to lay off their workers and employees.
If the country is operating at full employment before the recession and the crash of the stock market, then the firms would definitely respond to the decrease in demand and market prices by retrenching redundant workers. The government can intervene to restore the equilibrium to amend the employment situation. This can be done by decreasing taxes, increasing government spending as well as promoting an expansionary fiscal policy. This will increase the employment in the market as the government spending and projects will create jobs for people.
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